A bond is issued at $1,000 par value during a time in which interest rates for similar bonds were 8%.Today new bonds issued with a similar credit worthiness have a 10% interest rate.Which of the following is most likely to be true about the bond?

Question

Quizplus · Accepted Answer

Since the bond was issued at a time when interest rates were 8%, its coupon rate is likely to be lower than 8%. As current interest rates for similar bonds are 10%, the bond with a lower coupon rate would be less valuable and, therefore, would be selling at a discount (i.e., a price below $1,000).

A Bond Is Issued at $1,000 Par Value During a Time