You own a fixed-rate bond that has a coupon rate of 6.5 percent and matures in 12 years.You purchased this bond at par value when it was originally issued.If the current market rate for this type and quality of bond is 6.8 percent,then you would expect:

Question

Quizplus · Accepted Answer

When the market rate for bonds increases, the prices of existing fixed-rate bonds decrease to match the yields of new issues. Since the bond's coupon rate is less than the current market rate, its value will decline, which means that the bond price will fall below the face value. Therefore, if you sold the bond at the current market price today, you would realize a capital loss.

You Own a Fixed-Rate Bond That Has a Coupon Rate