Consider a $/00 par value bond with a 7% coupon paid annually and 5 years to maturity At a discount rate of 65% the value of the bond today is $102.08 One day later the discount rate increases to 75% Assuming the discount rate remains at 75% over the remaining life of the bond what is most likely to occur to the price of the bond between today and maturity?
If the discount rate increases to 75% from 65% th e price of a bond decreases At a discount rate of 75% the bond sells at a discount to face value As a discount bond approaches maturity it will increase in price over time until it reaches par at maturity.