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 2025. The bond was held in his brokerage account electronically, so he did not think about it on a daily basis. In 2015, 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 2025.

Question

Quizplus · Accepted Answer

Interest rates and bond prices have an inverse relationship. As interest rates increase, bond prices decrease. Therefore, if interest rates had climbed to 6.5% in 2015, Andrew's bond would have decreased in value, not increased.

Andrew Invested in a New Issue Corporate Bond on the Primary