Bonds Interest Rate

Whats the relationship between interest rates and bonds?

When interest rates ______, the bonds that were bought when interest rates were _____ will ________ in value. (a) fall, high, decrease (b) rise, low, increase (c) fall, high, increase (d) rise, low, not change Thanks to all of you who answered. I would choose Best Answer for all of you, but Yahoo won't let me do that, unfortunately =( But you all deserve 10 points .

Public Comments

1. That would be C. Bonds that were issued before rates fell are worth more now for obvious reasons, they pay more interest.
2. It's C. Bonds pay a fixed interest rate.
3. The answer is C. Interest rates and bonds have an inverse relationship. As interest rates fall, the price of the bond will rise and as interest rates rise, the price of the bond will fall. Therefore, A bond bought at 100 that yields 5% will increase in value if the interest rate drops to 4%.