If Interest Rates in the Overall Economy Increase to 8

Multiple Choice

If interest rates in the overall economy increase to 8 percent, which one of the following is most likely to be the market value of a $1,000 corporate bond with a fixed interest rate of 7 percent?

A) $0
B) $1,100
C) $900
D) $1,000
E) $1,300
Since the market rate is greater than the coupon rate, the market price should be less than $1,000.