If interest rates in general fall,
A) the prices of existing bonds rise
B) the prices of existing bonds fall
C) the prices of existing bonds are unaffected
D) the coupon rate adjusts for the change in interest rates

Question

If interest rates in general fall,​
A) ​the prices of existing bonds rise
B) ​the prices of existing bonds fall
C) ​the prices of existing bonds are unaffected
D) ​the coupon rate adjusts for the change in interest rates

Quizplus · Accepted Answer

When interest rates fall, the prices of existing bonds rise. This is because the interest rate on the bond becomes more attractive compared to the lower rates on newer bonds. As a result, investors are willing to pay more for the existing bonds in order to secure the higher interest rate.

If Interest Rates in General Fall,​

If Interest Rates in General Fall,