Last year,Theo purchased a fixed-rate,7-year bond at par that has a coupon rate of 6.5 percent.If the current market rate for this type and quality of bond is 6.8 percent,then he should expect

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When market interest rates increase, the value of fixed-rate bonds decreases. This is because investors can now purchase new bonds with higher interest rates, making the older, lower-rate bonds less attractive. As a result, if Theo were to sell his bond in today's market, he would likely receive less than the face value, resulting in a capital loss. Therefore, option E is the correct answer. Option A is incorrect because interest payments on fixed-rate bonds are set at the time of issuance and do not change. Option B is incorrect because the bond's yield to maturity is calculated based on its current market value, not the coupon rate. Option C is incorrect because the current yield is calculated based on the coupon rate divided by the current market value, so it would be higher than 6.5 percent. Option D is incorrect because the bond's market value would decrease, not increase, when interest rates rise.

Last Year,Theo Purchased a Fixed-Rate,7-Year Bond at Par That Has