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Bonds issued by United Aerospace Corp. are publicly-traded. The bonds will mature in 15 years and...

Bonds issued by United Aerospace Corp. are publicly-traded. The bonds will mature in 15 years and have a coupon rate of 8 percent. If the market rate of interest increases, then the:

Multiple Choice

  • current yield will decrease.

  • coupon rate will also increase.

  • yield to maturity will be less than the coupon rate.

  • coupon payment will increase.

  • market price of the bond will decrease.

Solutions

Expert Solution

market price of the bond will decrease.

There is an inverse relationship between price and interest rate. When interest rates increase, price of the bond will decrease. This is because investors can go to market to earn a higher interest rate. If you want to attract investors, you need to give a discount on your bonds.

jeff jeffy answered 2 years ago
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