Final answer:
The market price of a coupon bond will rise if the interest rates on other similar bonds fall, since this makes your bond's fixed coupon payments more attractive to investors compared to new bonds issued at the lower current rates.
Step-by-step explanation:
If you are holding a coupon bond and the interest rates on other similar bonds fall, the market price of your bond will rise. This is because the coupon payments of your bond are now relatively higher compared to new bonds with lower interest rates, making it more attractive to investors. The coupon payments on your bond will not change, as they are fixed when the bond is issued, and the fall in interest rates in the market means that new bonds are likely not to be as attractive as the one you hold.
The par value of your bond does not change; it remains the same throughout the bond's life until maturity. Furthermore, the bond's change in market price due to fluctuating interest rates is a reflection of its increased or decreased attractiveness to other investors. When you lock in a higher rate before the interest rates fall, your bond's present value increases.