What happens to the price of a 3-year bond (with par value $1,000)with an 8% coupon when interest rates change from 8 to 6%?
A) A price increase of $51.54
B) A price decrease of $51.54
C) A price increase of $53.47
D) A price decrease of $53.47

Question

Quizplus · Accepted Answer

When interest rates decrease, the price of existing bonds increases. The bond's price increases to reflect the higher present value of its future cash flows, given the lower discount rate.

What Happens to the Price of a 3-Year Bond (With