Suppose a 10-year, 6% coupon bond is issued, and one year later similar bonds are issued paying 5.85% coupons. What will happen to the market value of the first bond?

Question

Quizplus · Accepted Answer

The first bond's value will rise slightly because it pays a higher coupon rate (6%) compared to the newly issued bonds at 5.85%. Investors will value the higher income stream from the first bond more, leading to an increase in its market value.

Suppose a 10-Year, 6% Coupon Bond Is Issued, and One