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    Question

    A company issues 7-year bonds with a face value of

    ₹1,000 and a 10% annual coupon. The market interest rate rises to 12%. Which of the following is true?
    A The bond will be traded at a premium Correct Answer Incorrect Answer
    B The bond’s YTM is lower than coupon Correct Answer Incorrect Answer
    C The bond will be traded at a discount Correct Answer Incorrect Answer
    D The bond value equals face value Correct Answer Incorrect Answer
    E The bond is risk-free Correct Answer Incorrect Answer

    Solution

    • When market interest rates go above the coupon rate, investors demand more return, so bond prices fall. • Here, market yield (12%) > coupon rate (10%), so bond will trade at a discount.

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