Q3-61 A bond is issued at a face value of Rs. 100 with a 9% annual coupon; later, market interest rates rise. At what price is this bond now likely to trade?

 Correct answer: 👉 At a price below face value

अब इसे conceptually + exam-oriented तरीके से समझते हैं:

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Core Bond Pricing Rule (बॉन्ड का मूल नियम)

📌 Bond Price and Interest Rates move in opposite directions

• 📈 Market interest rates rise → 📉 Bond prices fall

• 📉 Market interest rates fall → 📈 Bond prices rise

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Apply to This Question (यहाँ क्या हो रहा है?)

• Bond Face Value = ₹100

• Coupon rate = 9% (₹9 per year)

• Market interest rates have risen
  👉 New bonds are now offering more than 9%

🔴 Result:

• Existing bond (9% coupon) becomes less attractive

• Investors will buy it only at a discount

• Hence, bond trades below face value

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Option-wise Analysis

❌ At the face value
→ Only when coupon rate = market rate
→ Not the case here

❌ At a price above face value
→ Happens when coupon > market rate
→ Opposite situation

❌ At a price that reflects only its credit risk
→ Interest rate risk is ignored here
→ Incorrect

✅ At a price below face value
→ ✔ Matches bond pricing theory
→ ✔ Most likely outcome

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✅ Final Answer

The bond will trade at a price below its face value

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📘 One-line Exam Trick

Market rate ↑ ⇒ Bond price ↓📊