All other things being equal, a bond's value will be below its maturity value of $1,000 if it pays interest of $100 per year and investors require a rate of return that is,:

Question

Quizplus · Accepted Answer

If investors require a higher rate of return than the interest rate the bond pays (in this case, $100 per year), they will be willing to pay less than the bond's maturity value of $1,000 in order to achieve that higher rate of return. Therefore, the bond's value will be below $1,000 if investors require a rate of return that is higher than the bond's interest rate of 10%.

All Other Things Being Equal, a Bond's Value Will Be