Asked by lyndsey holder on Jul 05, 2024
Verified
Theta Company has prepared to sell bonds with a stated rate of 6% when the market rate is 8%.These bonds will sell in the market at
A) par.
B) a discount.
C) a premium.
D) stated value.
Stated Rate
The nominal interest rate specified in the contractual terms of a financial instrument such as a bond.
Market Rate
The prevailing interest rate available in the marketplace for securities, loans, and deposits.
A Discount
A reduction applied to the normal selling price of a product or service, typically used as a promotional strategy or to incentivize early payment.
- Understand the relationship between market rate, stated rate, and the issuance price of bonds.
Verified Answer
NM
Nicole MachieleJul 08, 2024
Final Answer :
B
Explanation :
When the market rate is higher than the stated rate, bonds will sell at a discount. This is because investors can earn a higher rate of return in the market. Therefore, Theta Company's bonds will sell at a price lower than the face value, resulting in a discount.
Learning Objectives
- Understand the relationship between market rate, stated rate, and the issuance price of bonds.