Andrew invested in a new issue corporate bond on the primary market for $1,000,with a coupon rate of 5%,and a maturity date of 2020.The bond was held in his brokerage account electronically,so he did not think about it on a daily basis.On 2012,he thought about selling the bond on the secondary market to help pay for his school tuition.At that time,interest rates had climbed to 6.5%.This was great news for Andrew because now he could sell his bond for more than the principal amount he would receive in 2020.

Question

Quizplus · Accepted Answer

When interest rates increase, bond prices typically decrease. Therefore, if interest rates had climbed to 6.5%, the value of Andrew's bond would have decreased, not increased. He would likely receive less than the principal amount if he sold it on the secondary market.

Andrew Invested in a New Issue Corporate Bond on the Primary