Asked by Srishti Sharma on Jul 05, 2024
Verified
Theta Company has prepared to sell bonds with a stated rate of 6% when the market rate is 5%.These bonds will sell in the market at
A) par.
B) a discount.
C) a premium.
D) stated value.
Stated Rate
The interest rate declared on a financial instrument, such as a bond or loan, not accounting for compounding or market conditions.
Market Rate
The prevailing interest rate available in the marketplace for transactions involving similar assets or liabilities.
A Premium
An amount paid exceeding the nominal or face value of a security or insurance policy.
- Comprehend the connection between the market rate, the stated rate, and the price at which bonds are issued.
Verified Answer
MC
Martin CooperJul 09, 2024
Final Answer :
C
Explanation :
Since the stated rate of the bonds is higher than the market rate, investors will be willing to pay more than the face value of the bond to receive the higher interest payments. This will result in the bonds selling at a premium, meaning a price higher than the face value.
Learning Objectives
- Comprehend the connection between the market rate, the stated rate, and the price at which bonds are issued.