Why do interest rates and bond prices move inversely to each other? (Hint: In your answer, it might be easiest if you explain why a change in the price of a bond will alter the interest rate earned by owning the bond.)
a) Because when interest rates rise, the value of existing bonds decreases, causing investors to demand higher interest rates on new bonds
b) Because when interest rates rise, the value of existing bonds increases, causing investors to accept lower interest rates on new bonds
c) Because when interest rates decrease, the value of existing bonds decreases, causing investors to demand higher interest rates on new bonds
d) Because when interest rates decrease, the value of existing bonds increases, causing investors to accept lower interest rates on new bonds