Which of the following is a TRUE statement about the relationship between the price of bonds and the interest rate?

Question

Quizplus · Accepted Answer

The prices of bonds and interest rates have an inverse relationship, meaning that when interest rates rise, bond prices will fall and vice versa. This is because, if interest rates go up, the fixed interest rate on existing bonds suddenly becomes less attractive to investors, since they can get a higher rate elsewhere. As a result, in order to be competitive, bond issuers must lower the price of their bonds. Conversely, if interest rates go down, bond prices will increase, as investors are willing to accept a lower rate in exchange for the security of knowing that the bond's principal and interest payments are guaranteed.

Which of the Following Is a TRUE Statement About the Relationship