The market price of outstanding issues often varies from par (face value) because ______
the maturity data has changed, the coupon rate has changed, the market rate of interest has changed, or old bonds sell for less than new bonds
I believe - the market rate of interest has changed is the answer - please advise answer & why - thanks!© BrainMass Inc. brainmass.com December 24, 2021, 5:12 pm ad1c9bdddf
SOLUTION This solution is FREE courtesy of BrainMass!
Yes the answer is that the market rate of interest has changed.
The market price of the bond reflects the required rate of return by investors. Once the issue has been sold out, if the market interest rate changes, then the required rate of the investors also changes. This is so because, if the interest rates go up, then nobody wants a bond which is paying less interest and hence the price of bond goes down, similalry when interest rates fall down, everybody wants a bond which is paying a higher rate and the price goes up.