In part I, we introduced the bond as Wimpy's promise to pay you later for a hamburger today. Let's say that Wimpy promises to pay you back the money you lend him for a burger, i.e. principal, and will also throw in an order of fries, i.e. yield. Typically, bonds make two payments of yield per year that are called coupon payments. Thus, Wimpy would give you the fries in two installments, before returning the value of the burger. That is because their value depends on the level of interest rates.
Interest rates are the standard against which all investments are measured.
The higher the return from a risk-free investment, the less attractive a risky investment looks and vice versa. Before we jump into what happens to the price of a bond when interest rates change, let's explain why the value of money in the future is worth less than its value today. Over time, money grows by earning interest. So, if I wanted to have whatever it costs to buy a Whopper, let's say a dollar, one year from now, I would need to put away less than a dollar today. The more you earn on the money you put away today, i.e. the higher the interest rate, the less money you have to set aside today.