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If the Federal Reserve raises interest rates, what would you expect to happen to the price of outstanding bonds?

1 Answer

5 votes

Answer: decrease

Step-by-step explanation:

It should be noted that there is an inverse relationship between bonds and interest rate. This implies that when there is a rise in interest rates, the prices of bond will fall and when there is a fall in interest rates, the prices of bond will rise.

Since bonds typically pay fixed interest rate, this will becomes more attractive when there's a fall in interest rates and more investors will demand for bond which will invariably lead to rise in price.

User Rohan Dhar
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