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Assume that the risk-free rate is 7.5

1 Answer

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Final answer:

The bond becomes less attractive as interest rates rise, requiring the bond seller to lower its price to make it more appealing.

Step-by-step explanation:

The subject of this question is Finance or Investment.

In this question, the bond is initially issued at a 6% interest rate and is expected to sell for $10,000. However, one year before the bond's maturity, interest rates rise to 9%. As a result, the bond becomes less attractive compared to other bonds offering a higher interest rate. To make the 6% bond more appealing to potential investors, the bond seller would need to lower its price below $10,000.

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