A bond's value will be below its maturity value of $1,000 if it pays interest of $100 per year and investors require a rate of return of,all other things being equal:

Question

Quizplus · Accepted Answer

If the bond pays interest of $100 per year and investors require a rate of return higher than 10%, then the bond's value will be below its maturity value of $1,000. This is because investors can earn a higher rate of return on other investments with similar risk. Therefore, they will only be willing to purchase the bond at a discount to compensate for the lower rate of return.

A Bond's Value Will Be Below Its Maturity Value of $1,000