Asked by Oppong Bright on Apr 24, 2024
Verified
If a bond is issued at 101,the coupon rate was:
A) higher than the market rate of interest.
B) lower than the market rate of interest.
C) equal to the market rate of interest.
D) not related to the market rate of interest.
Coupon Rate
Each year, the interest yield on a bond is expressed as a percentage of its nominal value.
Market Rate of Interest
The prevailing rate at which borrowers and lenders agree to transact, influenced by various economic factors.
Bond
A fixed income instrument representing a loan made by an investor to a borrower, typically corporate or governmental.
- Comprehend the relationship between bond issue prices, coupon rates, and market interest rates.
Verified Answer
KI
Kimberly Isabella8 days ago
Final Answer :
A
Explanation :
When a bond is issued at a price higher than the face value, it means the effective yield of the bond is lower than its coupon rate. This indicates that the coupon rate is higher than the prevailing market rate of interest, otherwise investors would not be willing to pay more than the face value. Therefore, the correct answer is A - higher than the market rate of interest.
Learning Objectives
- Comprehend the relationship between bond issue prices, coupon rates, and market interest rates.
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