Final answer:
The price you would pay for a bond before maturity depends on the comparison of the bond's coupon rate to the current market interest rates. If market rates are higher than the bond's rate, the bond would be sold at a discount. For example, a $10,000 bond with a 6% coupon rate would sell for less than its face value if current rates are at 9%.
Step-by-step explanation:
The value you would pay for a debenture bond that matures in 15 years depends on the current market interest rates compared to the coupon rate of the bond. If the market interest rates are higher than the coupon rate, the bond's price will be less than its face value. Conversely, if market rates are lower, the bond price will be more.
When considering the example of a $10,000 ten-year bond with a 6% interest rate, if you are buying this bond when the interest rates are now 9%, you would expect to pay less than $10,000 for it. The reason is that new bonds on the market may be offering a 9% return, therefore, to make the 6% bond attractive, it has to be sold at a discount.
For example, if a bond with no risk pays $80 per year with one year left to maturity, and the current market rate is 12%, then to sell the bond, which is set to return at 8%, it would have to be priced below $1,000 to be competitive in the market and attract investors.