A city has issued 25-year general obligation bonds with a coupon rate of 8 percent. If the market rate currently available on comparable bonds is 10 percent, what has happened to the market value of those bonds?

Question

Quizplus · Accepted Answer

When the market rate increases, the market value of existing bonds with lower coupon rates decreases, making them less attractive to investors. In this case, the 8% coupon rate is lower than the 10% market rate, so the market value of the bond has decreased.

A City Has Issued 25-Year General Obligation Bonds with a Coupon