. If current market interest rates are higher than bond’s coupon rate, will the bond’s price...
. If current market interest rates are higher than bond’s coupon rate, will the bond’s price be higher or lower than the bond’s principal? Please explain why.
Homework Answers
If current market interest rates are higher than bond’s coupon rate, the price of bond will be LOWER than the principal
Price of bond is equal to the present value of all future coupon payments and the principal amount discounted at the current market interest rate
Hence, when it is higher than the coupon rate, the present value if lower than the par value
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A bond’s value is the same as its principal amount when the
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higher than the required rate of return
lower than the required rate of return
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