Question
When overall interest rates rise to 10% the bond you already owned with 5% coupon rate becomes more or less valuable to potential buyers so it’s price will?
Answers
GPT-4o mini
When overall interest rates rise to 10%, the bond you own with a 5% coupon rate becomes less valuable to potential buyers. This is because new bonds are being issued at the higher interest rate, making them more attractive.
As a result, the price of your existing bond with a lower coupon rate (5%) will fall to make its yield comparable to the new bonds being issued at 10%. Thus, the price of your bond will decrease.
As a result, the price of your existing bond with a lower coupon rate (5%) will fall to make its yield comparable to the new bonds being issued at 10%. Thus, the price of your bond will decrease.