n NISM Certifications
XV NISM Series XV
Medium

What is the relationship between interest rates and bond prices?

Practice question from NISM XV Mock Test 2 — bank. The correct answer is highlighted below with a full explanation.

Options

  1. A

    They move in the same direction

  2. They move in opposite direction

    Correct answer

  3. C

    Sometimes the same, sometimes opposite depending on bond duration

  4. D

    There is no relationship

Why this is the answer

When interest rates rise, existing bonds with lower coupons become less attractive, reducing their market price. When rates fall, bond prices increase.

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