If market interest rate rises above coupon rate, then bond will be sold_____________?
Correct answer: C. Below its par value
- A. Equal to return rate
- B. Seasoned price
- C. Below its par value
- D. Above its par value
Explanation
When the market rate exceeds the bond’s coupon rate, the bond’s fixed payments are less attractive, so its price falls below par value. This price reduction raises the bond’s effective yield toward the market rate.
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