Question
A bond issued by a public sector company offers a coupon
rate of 7.5% and is rated AAA by CRISIL. However, due to rising interest rates, the bond is now trading below face value. What is the most likely reason?Solution
When interest rates rise, new bonds offer higher returns, making existing bonds less attractive. Therefore, older bonds with lower coupons trade at a discount even if credit rating is AAA.
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