The market price of a bond with 12 years until maturity and an annual coupon rate of 8% increased yesterday.Which one of these may have caused this price increase?
A)the bond's rating was downgraded.
B)the issuing firm announced the next interest payment.
C)the issuing firm announced that its annual earnings met investor expectations.
D)market interest rates decreased.

Question

Quizplus · Accepted Answer

When market interest rates decrease, bond prices tend to increase. This is because the fixed coupon rate of the bond becomes more attractive relative to other investment options with lower rates of return. Therefore, a decrease in market interest rates would likely cause the market price of a bond with 12 years until maturity and an annual coupon rate of 8% to increase. The other options (A, B, and C) are unrelated to changes in market interest rates and would not have a direct impact on the bond's price.

The Market Price of a Bond with 12 Years Until