Current interest rates are 8%. You want to buy a long-term bond with a face value of $1000 that pays a coupon rate of 10%. Which of the following prices is feasible? a. $888.88
b. $1,000.00
c. $1,111.11
d. Not enough information to answer.
e. None of the above is feasible.

c. $1,111.11

Explanation:

When a bond's coupon rate is higher than the prevailing interest rate, the bond will be more sought after because it is paying more than the market is paying. As a result, the price of the bond will be higher than its par value to reflect the increased demand for it.

In other words, when a bond coupon rate is higher than the interest rate, the price will be higher than par. This is the case here so the bond will be selling at a higher price than $1,000 and the only option higher than $1,000 is option c at $1,111.11.

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