Question

Which of the following describes the relationship between stock and bond prices and interest rates?

There is a direct and positive relationship between the rate of interest and stock and bond prices. (As interest go up, stock and bond prices rise as well.)

The relationship is far too difficult to quantify.

There is an inverse relationship between interest rates and the price of a stock or a bond. (As interest rates go up, stock and bond prices decline.)

It varies with the performance of the stock or bond market.

Answer 1

The relationship between interest rates and stock or bond prices is fairly indirect but ganergene or usually they tend to move in opposite directions it means that usually they have an inverse relationship. It means that when interest rate falls then bond prices will increase and when interest rate increases then stock or bond prices will go down. But it is not guaranteed that this will be always true for example when the economy falls into recession then stock prices will fall and in order to restore the economy, the central bank of that country will decrease the interest rates. Although interest rates are falling and stock prices will also continue to fall even as bond price rises because of the low sentiments among the consumers.

So we can conclude that generally they are indirectly inversely related but it's not the same case in every situation.