Antonio holds a two-year bond issued by Jetson Corp with a principal amount of $10,000. The annual coupon rate is 6 percent. After receiving the first coupon payment, Antonio sold this bond at a price of $10,000. Immediately after selling the bond, he observed that the market interest rate increased. Therefore, Antonio could conclude:

Question

Quizplus · Accepted Answer

When market interest rates increase, the prices of existing bonds decrease because new bonds are issued at the higher current interest rate, making the lower-rate existing bonds less attractive. Therefore, if Antonio observed an increase in market interest rates immediately after selling his bond, he could conclude that the bond's price decreased in the market.

Antonio Holds a Two-Year Bond Issued by Jetson Corp with a Principal