Prices of bonds will be increased if interest rates

The correct answer is C. rises.

When interest rates rise, the price of bonds falls. This is because the higher interest rate makes it more attractive to invest in new bonds, which offer a higher return. As a result, investors are willing to pay less for existing bonds.

The opposite is also true. When interest rates fall, the price of bonds rises. This is because the lower interest rate makes it less attractive to invest in new bonds, which offer a lower return. As a result, investors are willing to pay more for existing bonds.

Here is a more detailed explanation of each option:

• Option A: equals. If interest rates equal the yield on a bond, then the bond will sell at its face value. This is because there is no incentive for investors to buy or sell the bond, as the return on the bond is equal to the return on other investments.
• Option B: lump sum declines. If the lump sum declines, then the price of the bond will also decline. This is because the lump sum is the amount of money that the investor will receive when the bond matures. If the lump sum declines, then the bond is less attractive to investors, and the price will fall.
• Option C: rises. If interest rates rise, then the price of bonds will fall. This is because the higher interest rate makes it more attractive to invest in new bonds, which offer a higher return. As a result, investors are willing to pay less for existing bonds.
• Option D: declines. If interest rates decline, then the price of bonds will rise. This is because the lower interest rate makes it less attractive to invest in new bonds, which offer a lower return. As a result, investors are willing to pay more for existing bonds.