What happens to the price of a bond when the market interest rate exceeds its coupon rate?

Bonds and Bond Valuation MCQs for PPSC, FPSC, NTS, and Pakistan government job tests. Select an option below, then read the explanation.

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Subject
Bonds and Bond Valuationfinance-mcqs › bonds-and-bond-valuation
Published
15 Jan 2019
Last updated
28 May 2026

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Explanation

When the market interest rate is higher than the bond's coupon rate, the bond's price falls below its par (face) value to compensate investors for the lower coupon payments compared to current market rates.

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