if you have a bond with a face value of $1000 and a coupon rate 2.25% but the ma

Question

if you have a bond with a face value of $1000 and a coupon rate 2.25% but the market interest rate for such bond is is 2.5%, will your bond sell at a par, at a premium or at a di punt? Explain why if you have a bond with a face value of $1000 and a coupon rate 2.25% but the market interest rate for such bond is is 2.5%, will your bond sell at a par, at a premium or at a di punt? Explain why if you have a bond with a face value of $1000 and a coupon rate 2.25% but the market interest rate for such bond is is 2.5%, will your bond sell at a par, at a premium or at a di punt? Explain why

Explanation / Answer

IF MARKET RETURN IS MORE THAN COUPON RATE THE BOND WILL SELL AT DISCOUNT, THIS IS SO BECAUSE A NORMAL INVESTOR WILL PURCHASE THOSE BONDS WHICH GIVES MORE RETURN SO IN THIS CASE AS THE BOND RETURN IS LESS THE DEMAND FOR BOND WILL COMES DOWN AS A RESULT THE THE BOND PRICE WILL COMES DOWN.

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