If a company has issued a fixed-interest bond to investors and then later interest rates fall on comparable securities,the value of the existing fixed-interest bond:
A) will increase.
B) will decrease.
C) will be unaffected.
D) depends only on the credit risk of the issuer.

Question

Quizplus · Accepted Answer

When interest rates fall, the fixed-interest bond becomes more attractive to investors because its fixed rate becomes more competitive compared to new bonds issued at the lower interest rate. This increased demand for the existing fixed-interest bond leads to an increase in its value.

If a Company Has Issued a Fixed-Interest Bond to Investors