If the market rate of interest is 7%, the price of 6% bonds paying interest semiannually with a face value of $500,000 will be

A) equal to $500,000
B) greater than $500,000
C) less than $500,000
D) greater than or less than $500,000, depending on the maturity date of the bonds

Question

Michael Contreras · Accepted Answer

Final Answer : C, Explanation :  The price of a bond is inversely related to the market interest rate. As the market rate is higher than the coupon rate of the bond (6%), the bond will trade at a discount. The lower price will compensate investors for the lower interest rate. Therefore, the price of the bond will be less than $500,000.

If the market rate of interest is 7%, the price of 6% bonds paying interest semiannually with a face value of $500,000 will be

A) equal to $500,000
B) greater than $500,000
C) less than $500,000
D) greater than or less than $500,000, depending on the maturity date of the bonds

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Learning Objectives

Related questions

If the market rate of interest is 7%, the price of 6% bonds paying interest semiannually with a face value of $500,000 will beA) equal to $500,000B) greater than $500,000C) less than $500,000D) greater than or less than $500,000, depending on the maturity date of the bonds

Definitions

Learning Objectives

Learning Objectives

Related questions

If the market rate of interest is 7%, the price of 6% bonds paying interest semiannually with a face value of $500,000 will be

A) equal to $500,000
B) greater than $500,000
C) less than $500,000
D) greater than or less than $500,000, depending on the maturity date of the bonds