Bonds with a 6% interest rate were issued when the market rate of interest was 7%. The quoted bond price will be:
A) greater than 100.
B) less than 100.
C) 100.
D) equal to the face value.

Question

Quizplus · Accepted Answer

When the market rate of interest increases above the bond's coupon rate, the value of the bond decreases. Therefore, the quoted price of the bond will be less than its face value (which is 100 in most cases) in order to compensate for the lower interest payments compared to the market rate of interest.

Bonds with a 6% Interest Rate Were Issued When the Market