When nominal interest rates decrease, the price of existing bonds typically __________ because they offer higher returns compared to newly issued bonds.

When nominal interest rates decrease, the price of existing bonds typically increases. This happens because existing bonds usually have fixed interest payments that may be higher than what new bonds offer at the lower rates. For example, if you have a bond that pays 5% interest and new bonds are only paying 3%, your bond becomes more valuable. Investors will want to buy your bond to get the higher return, driving up its price. So, when interest rates fall, existing bonds are more attractive, leading to an increase in their prices.