Question

In 2025, Jordan Co. acquired, at a premium, Pippen, Inc., 10-year bonds as a long-term investment. At December 31, 2026, Pippen's bonds were quoted at a small discount. Which of the following situations is the most likely cause of the decline in the bonds’ fair value?

Group of answer choices

Pippen issued a stock dividend.

Interest rates have declined since Jordan purchased the bonds.

Interest rates have increased since Jordan purchased the bonds.

Pippen is expected to call the bonds at a premium, which is less than Jordan's carrying amount.

Answer 1

A) Incorrect stock dividend do not affect the fair values of bond

B)Incorrect if interest rate decline then the mentioned rate bonds will quoted at even higher premium

C) Correct Price of bond is inversly proportional to the interest rate. This is due to yield which adjutsts as interest fluctuates. Bonds which are at premium have coupon rate exceeding the market interest rate and when market rate increases and exceeds the coupon rate there yield decreases hence they are quoted at discount .

d) Bonds which are being expected to be called at premium are quoted higher and not at discount