Suppose investors decided to sell their holdings of shares in order to purchase outstanding bonds payable and as a result, the prices of bonds payable increased. What would be the likely impact on market interest rates?

Question

Quizplus · Accepted Answer

As investors sell their shares and buy more bonds, demand for bonds increases, causing bond prices to rise. When bond prices rise, bond yields (interest rates) fall because there is an inverse relationship between bond prices and yields. Therefore, the likely impact on market interest rates is that they will fall.

Suppose Investors Decided to Sell Their Holdings of Shares in Order