In 2005, Lee Co. acquired, at a premium, Enfield, Inc. ten-year bonds as a long-term investment. At December 31, 2006, Enfield’s bonds were quoted at a small discount. Which of the following situations is the most likely cause of the decline in the bonds’ market value?

  1. Enfield issued a stock dividend.
  2. Enfield is expected to call the bonds at a premium, which is less than Lee’s carrying amount.
  3. Interest rates have declined since Lee purchased the bonds.
  4. Interest rates have increased since Lee purchased the bonds.