The Bottom Line. Interest rates and bond prices have an inverse relationship. When interest rates go up, the prices of bonds go down, and when interest rates go down, the prices of bonds go up.
The demand curve for bonds shifts due to changes in wealth, expected relative returns, risk, and liquidity. Wealth, returns, and liquidity are positively related to demand; risk is inversely related to demand. Wealth sets the general level of demand.
A fundamental principle of bond investing is that market interest rates and bond prices generally move in opposite directions. When market interest rates rise, prices of fixed-rate bonds fall. this phenomenon is known as interest rate risk.
A) The demand for bonds is : Bd=W- Md=50,000-60,000(0.35-i).