The price of a bond and the interest rate

Question

Quizplus · Accepted Answer

Bond prices and interest rates are inversely related. When interest rates rise, bond prices fall and vice versa. This is because as interest rates increase, newly issued bonds offer higher yields, making existing bonds with lower yields less attractive to investors, thus resulting in a decrease in their demand and price. Conversely, when interest rates decrease, newly issued bonds offer lower yields, making existing bonds with higher yields more attractive to investors, thus resulting in an increase in their demand and price.

The Price of a Bond and the Interest Rate