If a 7 percent, $1,000 bond matures after ten years and current interest rates are 9 percent, the current price of the bond should not be
1. $1,000
2. $872
3. $1,140

Question

If a 7 percent, $1,000 bond matures after ten years and current interest rates are 9 percent, the current price of the bond should not be  
1. $1,000
2. $872
3. $1,140

Quizplus · Accepted Answer

The current price of the bond should be less than $1,000 because the interest rate of the bond (7%) is lower than the current interest rates (9%). This makes the bond less attractive compared to new bonds issued at the higher rate, hence its price drops below its face value to offer a competitive yield. Therefore, it should not be equal to its face value ($1,000) or above it ($1,140).

If a 7 Percent, $1,000 Bond Matures After Ten Years