Consider a coupon bond that sold at par value two years ago. If interest rates are much lower now than when this bond was issued, the coupon rate of that bond will likely be ____ the prevailing interest rates, and the present value of the bond will be ____ its par value.

Question

Consider a coupon bond that sold at par value two years ago. If interest rates are much lower now than when this bond was issued, the coupon rate of that bond will likely be ____ the prevailing interest rates, and the present value of the bond will be ____ its par value. ​

Quizplus · Accepted Answer

The coupon rate of the bond will be above the prevailing interest rates because it was issued when interest rates were higher, and the present value of the bond will be above its par value because lower current interest rates make its higher coupon payments more valuable.

Consider a Coupon Bond That Sold at Par Value Two