Final answer:
The indicator of the likelihood that contract terms are met on a bond is the interest rate. When interest rates change, the value of the bond can either increase or decrease.
Step-by-step explanation:
The indicator of the likelihood that contract terms are met on a bond is the interest rate. When interest rates change, the value of the bond can either increase or decrease. If interest rates rise, the bond becomes less attractive to investors, and its value decreases. Conversely, if interest rates fall, the bond becomes more attractive, and its value increases.
For example, if a bond with a face value of $10,000 carries an interest rate of 5% and market interest rates rise to 7%, the bond's value will decrease because investors can find other bonds that pay higher interest rates. On the other hand, if market interest rates fall to 3%, the bond's value will increase because its interest rate is higher than the prevailing rates.