You own a bond that has a 7% coupon 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 7.5%, then you would expect:

Question

Quizplus · Accepted Answer

EWhen the market interest rate exceeds the coupon rate of a bond, the bond's price falls below its face value, leading to a capital loss if sold at market price (C). Additionally, the current yield, which is the annual coupon payment divided by the bond's current price, increases when the bond's price decreases, but since the bond's coupon rate is fixed at 7% and its price has dropped, the current yield remains at 7%, not less (E).

You Own a Bond That Has a 7% Coupon and Matures