A bond was issued at a par value of $1,000 when the interest rate for similar bonds was 8%. Presently, new bonds issued with a similar creditworthiness have a 10% interest rate. Which of the following is most likely to be true about the bond?

Question

Quizplus · Accepted Answer

When new bonds are issued at a higher interest rate (10%) than the existing bond's rate (8%), the existing bond's market value decreases, causing it to sell at a discount. This is because investors can get a higher return from the new bonds, making the existing bond less attractive unless its price is reduced.

A Bond Was Issued at a Par Value of $1,000