The Walthers Company has a semi-annual coupon bond outstanding.An increase in the market rate of interest will have which one of the following effects on this bond?

Question

Quizplus · Accepted Answer

An increase in the market rate of interest will decrease the demand for the Walthers Company bond as investors will require a higher yield to compensate for the increased risk of holding the bond. This will lead to a decrease in the market price of the bond, as the market price moves inversely with the market interest rate. The coupon rate and time period of the bond remain fixed and are not affected by changes in the market interest rate.

The Walthers Company Has a Semi-Annual Coupon Bond Outstanding