Asked by Courtnie Marie on Apr 24, 2024
Verified
A bond with an annual coupon payment of $100 originally sold at par for $1,000. Market interest rates are currently 12%. This bond would be selling at a ____ in order to compensate ____.
A) premium; the purchaser for the below market coupon rate
B) discount; the purchaser for the below market coupon rate
C) premium; the seller for the below market coupon rate
D) discount; the seller for the below market coupon rate
Market Interest Rates
The prevailing rates at which borrowers can obtain loans and lenders can earn interest in the financial markets, influenced by monetary policy, market demand, and economic conditions.
Premium
An amount paid in addition to a standard rate or principal, often associated with insurance policies or bond prices over par value.
Discount
A reduction applied to the price of goods, services, or securities, either for promotional purposes or to reflect the present value of future cash flows.
- Uncover the relationship linking bond prices, interest rates, and yield indicators.
Verified Answer
AT
Archit Thakkar7 days ago
Final Answer :
B
Explanation :
When market interest rates are higher than the bond's coupon rate, the bond is less attractive and will sell at a discount in order to compensate the purchaser for the below market coupon rate.
Learning Objectives
- Uncover the relationship linking bond prices, interest rates, and yield indicators.