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## Balance Sheet \$type=three\$count=6\$author=hide\$comment=hide\$label=hide\$date=hide\$show=home\$s=0

See following table

B.P.      Interest Rate

\$100        10%

\$ 90          12%

\$ 80           15%

From above table you can understand the relationship between bond price and interest rate. It show negative relationship between them. But this question.  At first it might appear confusing that bond prices fall when interest rates rise - when properly looked at though this makes a lot of sense.

When interest rate rises, investor wants to more return on investment. But if other party who wants to sell these bonds will increase its price, return on investment will decrease. See above example, market rate of return will increase 10% to 12%, now investor will want to get more return on his investment. On the other side, vendor of bonds must have to decrease bond's price from \$ 100 dollar to \$ 90 because if we calculate return on investment  by 12/90 X 100 it will be 13.33% which is higher on the investment.

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