On the secondary bond market

Question

Quizplus · Accepted Answer

Bond prices on the secondary market vary with interest rate movement. As interest rates rise, bond prices will typically fall, and vice versa. This is because investors demand higher yields to compensate for the increased risk of holding a lower-yielding bond in a rising interest rate environment. Conversely, if interest rates fall, bond prices may rise as investors are willing to accept lower yields for the security of owning a bond. Choices A, B, and D are not correct, as new bonds are sold on the primary market, bonds are not guaranteed to bring at least par value, and bond yields are related to price, resulting in yield movement together with price.

On the Secondary Bond Market