Janette buys a bond in the amount of $500 with a promised interest rate of 15 percent.If the market interest rate decreases to 5 percent,Janette can sell her bond for up to

Question

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When the market interest rate decreases from the bond's interest rate (15% to 5%), the bond's value increases because it pays more interest than new bonds issued at the current lower rate. The bond's price rises to equate its yield with the market rate. A bond paying significantly more interest than the market rate becomes more valuable, hence it can be sold for more, in this case, $1,500, reflecting the increased demand for its higher yield.

Janette Buys a Bond in the Amount of $500 with a Promised