Asked by tushig amarjargal on May 20, 2024
Verified
When the market rate of interest is below the nominal rate,a bond sells at
A) par.
B) a premium.
C) a discount.
D) stated value.
Market Rate Of Interest
The prevailing rate of interest determined by supply and demand in the credit market, often used as a benchmark in financial transactions.
- Recognize the association between the market rate, the stated rate, and the offering price of bonds.
Verified Answer
DV
Desiree VarelaMay 20, 2024
Final Answer :
B
Explanation :
When the market rate of interest is below the nominal rate (also known as the coupon rate), a bond sells at a premium because its fixed interest payments are more attractive compared to the current market rates. Investors are willing to pay more for the bond to receive its higher interest payments.
Learning Objectives
- Recognize the association between the market rate, the stated rate, and the offering price of bonds.