Question

You own a bond that has a 7% coupon and matures in 12 years. You purchased this bond at par value when it was originally issued. If the current market rate for this type and quality of bond is 7.5%, then you would expect:

A. the bond issuer to increase the amount of each interest payment on these bonds.

B. the yield to maturity to remain constant due to the fixed coupon rate.

C. to realize a capital loss if you sold the bond at the market price today.

D. today's market price to exceed the face value of the bond.

E. the current yield today to be less than 7%.

Answer 1

Answer:C. to realize a capital loss if you sold the bond at the market price today

Explanation:

You own a bond that has a 7% coupon and matures in 12 years. You purchased this bond at par value when it was originally issued. If the current market rate for this type and quality of bond is 7.5%, then you would expect: to realize a capital loss if you sold the bond at the market price today