Explain why bond prices might decline when stock prices rise?

Does this have anything to do with stocks being a substitute for bonds and vice versa? Also, would you expect a stock to be a substitute or a complement?

I say substitute. Another reason I say that is because of the risk involved in bonds vs. stocks. With stocks at least you 鈥渙wn鈥?part of the company in which you invested. With bonds you only 鈥渙wn鈥?part of the debt and the company 鈥渙wes鈥?you because you lent them your investment. So, when young, bonds are a great way to go if you have time and money to be risky with. As people age and require more security, they can substitute the investment in bonds for the security of stocks. Not that either are 100% secure.

Is that accurate or false??? Thanks in advance...

Bond prices often decline as a result of lower interest rates. For example, if bond interest rates fall from 5% to 4% on a $1000 coupon bond, the bondholder will only recieve $40 per year versus the previous $50. As a result, the 4% bond is not worth as much as the 5% bonds so the price of bonds, when interest rates decline, go down.

As a result of lower interest rates (and bond prices going down), stocks seem more attractive to investors because they can offer a greater return. When more people are investing in stocks, companies have more money to spend on various things (expansion, new product production, etc.) so their prices often will rise. Also, with more people investing in stocks, demand for certain stocks increases causing prices to rise in order to regulate supply and demand (the higher the price goes, the less people want to buy a certain stock/product/good and vise versa)

Remember this phrase: "When interest rates rise, stocks die. When interest rates fall, stocks have a ball." Cheesy, I know... but it helps!

Also, as for the riskiness of bonds and stocks, generally, it is better to invest in "riskier" investments like stocks when you are young. Investing in stocks is a long-term process and the longer you are invested in stock, the greater your potential return. As you age, you should consider reallocating some of your assets into bonds because they tend to be much safer and offer more stable income for retirement.

Stocks are more risky than bonds because when a corporation defaults, its creditors such as bondholders get paid long before its stockholders. Also, investing in securities like U.S. Treasury bonds is considered "risk-free" investing because it is not likely the U.S. government will default on its debt obligations.

They can be either substitutes or complements. When people are fleeing risk in the equities markets, they often run toward Treasury securities. When people make 401(k) deposits, they often do so in a balanced manner and so are complements.

Bonds and stocks bear different types of risks. With bonds you are promised the return of your principal, you are not promised that money you reinvest when sent will get a comparable rate of return. So the primary risk with bonds is long term income risk. With stocks, you are not promised anything, though dividends tend to persist. Since, on average, dividends tend to rise approximately with inflation, your income is pretty much insured in terms of maintaining value, but your principal is all over the board in terms of value.

If you are young, a careful plan of purchasing equities is prudent. As you age, since you are more likely medical money and so forth so bonds should complement your portfolio.

supply and demand much like any commodity. the prices of bonds declines because more people are buying stocks and also interest rates are falling, which lowers the yield on bonds while raising their prices