Final answer:
The price of a coupon bond is determined by interest rates in the market and the level of risk associated with the bond.
Step-by-step explanation:
The price of a coupon bond is determined by a few factors. One of the main factors is the interest rates prevailing in the market. When interest rates in the market are lower than the coupon rate of the bond, the bond becomes more attractive to investors and its price tends to increase. On the other hand, if market interest rates rise above the coupon rate of the bond, the bond becomes less attractive and its price tends to decrease.
Another factor that determines the price of a coupon bond is the risk associated with the bond. If a bond carries higher risk, such as the risk of default by the issuer, investors would demand a higher yield to compensate for the risk. This would result in a lower price for the bond.
In summary, the price of a coupon bond is determined by the prevailing interest rates in the market and the level of risk associated with the bond.