please explain how the monetary policy effects the valuation of securities, specifically bonds and stocks? explain and discuss in max

An expansionery monetary policy lowers the interest rates causing reduction in borrowing costs and hence firms generate investments and stimulates profits and provides higher dividend.Thus, valuation of stock increases. Whereas a contractionary monetary policy increases interest rate and causing a decrease in valuation of stock through a simlilar process.

According to the common wisdom bonds pay a fixed interest rate.When there is an expansionery monetary policy causing reduction in interest rate, fixed interest rate paying bonds becomes attractive as people enjoy higher interest rate than the market interest rate and hence people buys more bonds causing excess demand in the bond market  which drives up bond's value and on the other hand contractionery monetary policy causes people to demand less bond and ultimately reduction of its value in a similar fashion.