Asked by Natalia Smart on Jun 19, 2024
Verified
What is the relationship between interest rates and bond prices? Explain.
Interest Rates
The cost of borrowing money, typically expressed as a percentage of the amount loaned, paid to the lender at regular intervals for the use of their money.
Bond Prices
The market value of a bond, which can fluctuate based on interest rates, the bond’s credit quality, and other factors.
- Comprehend the relationship between interest rates and bond prices, including the impact of changes in interest rates.
Verified Answer
JM
JaeVino MoralesJun 21, 2024
Final Answer :
There is an inverse relationship between bond prices and interest rates. A bond pays a fixed sum of money each year during its life. At a higher interest rate, the present value of the future payments declines, reducing the value of the bond.
Learning Objectives
- Comprehend the relationship between interest rates and bond prices, including the impact of changes in interest rates.