A 7% CD was issued recently, at par, which you now purchase at 6.75%. You would expect to pay:
A) The face value of the CD
B) More than the face value
C) Less than the face value
D) Too little information to decide

Question

Quizplus · Accepted Answer

When the interest rate on a CD decreases from 7% to 6.75%, the price of the CD increases above its face value because the fixed interest payments are more attractive compared to the current lower rate.

A 7% CD Was Issued Recently, at Par, Which You