You purchased a 30 year bond a year ago with a coupon interest rate and yield-to-maturity of 6%. Market interest rates today for
bonds of similar risk and maturity are 13%. If you decide to sell your bond today, you would expect: a. To sell the bond for less than what you paid for the bond. b. To sell the bond for more than what you paid for the bond.
c. That since the coupon of the bond does not change, the price of the bond has not changed.
d. That since the par value of the bond does not change, the price of the bond has not changed.
e. That since there is insufficient information to make a determination why interest rates changed, it is impossible to determine whether the price of the bond has increased or decreased.
Answer:A. To sell the bond for more than what you paid for the bond
Explanation:
The security market in which bonds are sold are affected by information in relation to specific bond either favorable or unfavorable information.
The price of the bond will appreciate in response to existing or anticaped positive information and will depreciate in response to negative or anticaped negative information..
The increase in market return in relation to the bond of similar nature in the above scenario shows an existing or anticipated positive development and for this the bond is expected to be sold than the purchased price.
