Antonio holds a two-year bond issued by Jetson Corporation with a principal amount of $10,000 and an annual coupon rate of 6%.He considered selling it after receiving the first coupon payment a week ago,at a price of $9,953.Since that time,the coupon rate on new bond issues has risen from 6.5% to 7.0%.If he were to sell the bond today,the price would be

Question

Quizplus · Accepted Answer

When the coupon rate on new bond issues increases, the value of existing bonds with lower coupon rates decreases. Therefore, the bond that Antonio holds with a 6% coupon rate decreases in value. The change in coupon rates from 6.5% to 7% is significant enough to have a negative impact on the price of Antonio's bond, causing it to be lower than it was a week ago. Therefore, the correct answer is D.

Antonio Holds a Two-Year Bond Issued by Jetson Corporation with a Principal