Pentrax Corp issued 25 year bonds in 2002 with a coupon rate of 6% and a face value of $1,000.The bonds sold for face value when issued.Since 2002,interest rates have increased,so the going rate on similar bonds is now 9%.Which of the following statements is most accurate?

Question

Quizplus · Accepted Answer

The investor who purchased the bond in 2002 will continue to earn the same coupon rate of 6% for the life of the bond, regardless of changes in interest rates. This is because the coupon rate is fixed at the time of issuance. Therefore, choice A is the most accurate statement. Choice B is incorrect because Pentrax Corp will continue to pay the same interest payment of $60 per year based on the coupon rate of 6%. Choice C is incorrect because the investor will not experience an increase in return since the coupon rate remains fixed at 6%. Choice D is also incorrect because the bond price may actually decrease due to the increase in interest rates.

Pentrax Corp Issued 25 Year Bonds in 2002 with a Coupon