For fixedrate bonds its important to realize that the value

For fixed-rate bonds it\'s important to realize that the value of the bond has a(n)(-Select-1.constant2.inverse3.parallel) relationship to the level of interest rates. If interest rates rise, then the value of the bond (-Select-1.falls2.rises3.stabilizes); however, if interest rates fall, then the value of the bond (-Select-1.falls2.rises3.stabilizes). A (-Select-1.par2.discount3.premium)bond is one that sells below its par value. This situation occurs whenever the going rate of interest is above the coupon rate. Over time its value will (-Select-1.increase2.decrease3.flatten)approaching its maturity value at maturity. A(-Select-1.par2.discount3.premium)bond is one that sells above its par value. This situation occurs whenever the going rate of interest is below the coupon rate. Over time its value will(-Select-1.increase2.decrease3.flatten)approaching its maturity value at maturity. A par value bond is one that sells at par; the bond\'s coupon rate is equal to the going rate of interest. Normally, the coupon rate is set at the going market rate the day a bond is issued so it sells at par initially.

Solution

For fixed-rate bonds it\'s important to realize that the value of the bond has a(n) inverse relationship to the level of interest rates. If interest rates rise, then the value of the bond falls; however, if interest rates fall, then the value of the bond rises. A discount bond is one that sells below its par value. This situation occurs whenever the going rate of interest is above the coupon rate. Over time its value will increase approaching its maturity value at maturity. A premium bond is one that sells above its par value. This situation occurs whenever the going rate of interest is below the coupon rate. Over time its value will decrease approaching its maturity value at maturity. A par value bond is one that sells at par; the bond\'s coupon rate is equal to the going rate of interest. Normally, the coupon rate is set at the going market rate the day a bond is issued so it sells at par initially.