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What is the relationship between bond prices and yields?

  1. What is the relationship between bond prices and yields?
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Answer #1

There is an inverse relationship between bond prices and yields. when the bond's price increase, price will decrease and vice versa. This is because the yield is used to find the price of the bond. The future cash flows of bond in the form of coupon and face values are discounted using yield to find the price. The yield is in the denominator. When the denominator increase, the final answer which is basically the price of the bond will decrease which shows that there is an inverse relationship between prie and yields.

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