A consol with a coupon payment of $100 is purchased for $1,000. When the consol is sold, the interest rate is 20%. What has happened to the price of the consol?

Question

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When the interest rate increases to 20%, the value of the $100 coupon payment decreases as it is less valuable in comparison to the market interest rate. This causes the price of the consol to decrease, resulting in a lower resale value than the initial purchase price of $1,000.

A Consol with a Coupon Payment of $100 Is Purchased