The correct answer is B. increases.
A bond is a fixed income instrument that represents a loan made by an investor to a borrower (typically corporate or governmental). The borrower issues bonds to raise money and agrees to pay the bond holders a fixed interest rate for a specified period of time until the loan is repaid.
The price of a bond is inversely related to the market interest rate. When the market interest rate increases, the price of bonds decreases. This is because investors can earn a higher return by investing in new bonds that pay a higher interest rate. Conversely, when the market interest rate decreases, the price of bonds increases. This is because investors can earn a lower return by investing in new bonds that pay a lower interest rate.
Therefore, the price of an outstanding bond increases when the market rate increases. This is because the bond holders are now receiving a higher interest rate than they could earn by investing in new bonds.
Option A is incorrect because if the market rate never changes, the price of the bond will also remain unchanged.
Option C is incorrect because if the market rate decreases, the price of the bond will increase.
Option D is incorrect because the market rate is not earned by the bond holders.