You own a bond that has a 7% coupon and matures in 12 years. You purchased the b

Question

You own a bond that has a 7% coupon and matures in 12 years. You purchased the bond at its par value of $1,000 when it was first issued. If the current market rate for this type of bond is 7.5% then you would expect:

a. the issuer of the bond to increase the amount of each interest paymenton the bonds

b. the market interest rate to remain the same due to the fixed coupon rate

c. the current market price to exceed the par value of the bond

d. to realize a capital loss if you sold the bond at the current market price today

Explanation / Answer

c. the current market price to exceed the par value of the bond

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