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Why are bond prices inversely related to interest rates ?
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Answer Posted / nagasarada
At first glance, the inverse relationship between interest
rates and bond prices seems somewhat illogical, but upon
closer examination, it makes sense. An easy way to grasp
why bond prices move opposite to interest rates is to
consider zero-coupon bonds, which don't pay coupons but
derive their value from the difference between the purchase
price and the par value paid at maturity.
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