If the going market rate rd declines what happens to the pri

If the going market rate, rd, declines what happens to the price of existing bonds?

The price of existing bonds decline

The price of existing bonds is unaffected by rd.

The price of existing bonds is unchanged. Only newly issued bonds are affected.

The price of esisting bond increases.

The price moves around randomly.

Solution

The price of existing bond increases.

Explanation:

Their is a inverse relationship between interest rate and bond price.

If market interest rates decrease, the value of a bond will increase since the bond\'s stated fixed interest payments will be greater than the amounts available in new bonds issued at current market interest rates. (However, be aware that a bond\'s call price can limit the amount of increase in market value.)