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A Bond Has a $1,000 Par Value,makes Annual Interest Payments

Question 108

Multiple Choice

A bond has a $1,000 par value,makes annual interest payments of $100,has 5 years to maturity,cannot be called,and is not expected to default.What should we generally expect of the price of this bond if interest rates change?


A) If interest rates on similar bonds rise, the price of this bond should decline.
B) If interest rates on similar bonds decline, the price of this bond should rise.
C) If interest rates on similar bonds rise, the price of this bond should also rise
D) Both a and b explain the potential price action on this bond.

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