Final answer:
The 9-year Treasury bond with a 9.5% coupon should sell at a greater price than the one with an 8.5% coupon rate because it offers higher annual interest payments to investors. The market value of bonds is also influenced by the prevailing market interest rates compared to the bond's coupon rate.
Step-by-step explanation:
The question relates to the price at which two different Treasury bonds would sell based on their coupon rates. A Treasury bond with a higher coupon rate pays more interest compared to one with a lower coupon rate. For example, a 9-year Treasury bond with a 9.5% coupon will pay more annual interest than a 9-year Treasury bond with an 8.5% coupon rate. Given this, the bond with the 9.5% coupon should sell at a greater price because it offers a higher annual payment to the investor.
Moreover, considering market interest rates, if interest rates in the economy are lower than the bond's coupon rate, the bond will generally sell for more than its face value. Conversely, if the market rates are higher, the bond will sell for less. This is because investors can earn a higher yield elsewhere, so older bonds with lower rates become less valuable.
Therefore, assuming the market interest rates have not changed significantly since these bonds were issued, the 9-year Treasury bond with a 9.5% coupon should generally sell at a greater price than the 9-year Treasury bond with an 8.5% coupon rate due to its better interest payments.