The market price of existing bonds is ________ to the rate of interest prevailing in the economy.

Question

Quizplus · Accepted Answer

When interest rates in the economy increase, the value of existing bonds decreases as new bonds issued will pay higher interest rates. Therefore, the market price of existing bonds is inversely related to the prevailing rate of interest in the economy. Conversely, when interest rates decrease, the value of existing bonds increases as they offer higher rates than new bonds.

The Market Price of Existing Bonds Is ________ to the Rate