The market price of a bond with 12 years until maturity and an annual coupon rate of 8% increased yesterday.Which one of these may have caused this price increase?
A) The bond's rating was downgraded.
B) The issuing firm announced the next interest payment.
C) The issuing firm announced that its annual earnings met investor expectations.
D) Market interest rates decreased.

Question

Quizplus · Accepted Answer

When market interest rates decrease, the value of existing bonds with higher coupon rates increase, leading to an increase in their market price. This is because investors are willing to pay more for the higher coupon rate in a low-interest-rate environment.

The Market Price of a Bond with 12 Years Until