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Suppose a firm wishes to sell a one-year \$1000 bond that pays 4% interest in the secondary market but the government is now issuing \$1000 bonds at 5%.
The Bond the firm wishes to sell will
not be able be to sold until the government offers bonds at that identical interest rate.
likely sell at $900.
sell at a price $100 higher than face value.
likely sell in the secondary market at $800.
still sell for $1000.