Discusses price changes for interest rates on loans explain why this change may be taking place.
Interest rate are the percentage of the loan amount which the borrower needs to pay to the lender in lieu of investment. Business require loan to fund a new project or for the expansion of its business. Interest rates are cost of debt for the business and is the rate of return for lenders.
Interest rate changes as the supply and demand of credit changes and thus depends on the state of economy. It also increases with the rise in inflation and vice versa.
Price of bonds or loans is inversely proportional to the interest rate or the required rate of return of the lender. As the interest rate increases, the price decreases and when the interest rate decreases price increases. This is because, when the market interest rate increases, demand for bonds which are yielding lower returns decreases resulting in a fall in their price. Similarly, when the market interest rate decreases, demand for high yielding bonds increases and hence the price goes up.
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