Recently, Josiah bought a bond with face value of $1,000. He paid $1,150 for the bond. His bond investment undoubtedly pays a higher interest rate than the going rate for similar bonds currently out on the market.

Question

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Josiah is buying a bond on the secondary market. In order for him to pay more than the face value for the bond, the future stream of interest payments the bond promises to pay are greater in value than the going interest rate for similar bonds. New issue bonds of similar quality hold a fixed interest rate that is less than the interest rate on Josiah's bond.

Recently, Josiah Bought a Bond with Face Value of $1,000