Answer: The bond has to go down.
Step-by-step explanation: A bond is a loan usually given by an issuer to an investor that pays back a fixed rate of return.
Although bonds have a fixed rate of return, bonds itself are not fixed which means when bond price can rise or fall. When bond rises, interest falls and when bond price falls, interest rises. A vice versa relationship.
What this means is that the investor has to pay more, take for example.
-If a bond of $100 has a return rate of 10%, this means investor will pay back $10.
-If bond price increases $120, investor will have to pay $12. Investor pays more
-However, if bond price decreases to $80, investor will pay $8. Investor pays less
Therefore, for an existing bond to compete with a new bond which has a higher interest rate, the existing bond price has to go down so that interest can go up.
