Homework Answers
There is opposite relationship between bond price and stock market. when stock market rises, it leads to the fall in value of bond.
Presently, stock prices are rising and value of bond is tumbling.
Increase in prices of stock is reflection of performance of economy. Rise in prices of stock implies that economy is performing well. Hence, growth rate is high and prices of commodities are also highs in economy. Hence, for countering inflation, Fed reduces money supply and increases interest rate. And there is inverse relationship between the bond price and interest rate in market.
Thus, rise in interest rate leads to the fall in price of bond.
Therefore, bonds and stocks are inversely related.
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