Asked by Kimmy Mendivel on Jun 26, 2024
Verified
When the effective yield of a bond is the same as the stated rate on the bond,the bond is sold at
A) a discount.
B) a premium.
C) par.
D) a price above par.
Effective Yield
A measure of the return on an investment, accounting for the effects of compounding interest over a specified period.
Stated Rate
The nominal interest rate specified in a loan or financial instrument agreement, not accounting for compounding or fees.
- Learn about the interaction between the market rate, the stated rate, and the price for issuing bonds.
Verified Answer
SB
Swasat BorahJun 28, 2024
Final Answer :
C
Explanation :
When the effective yield of a bond is the same as the stated rate on the bond, it means that the bond is priced correctly and is selling at its face value or par. Therefore, the correct choice is C. A bond is sold at a discount when its effective yield is higher than the stated rate, and it is sold at a premium when the effective yield is lower than the stated rate. If the bond is sold above par, it means that the bond is selling at a price higher than face value.
Learning Objectives
- Learn about the interaction between the market rate, the stated rate, and the price for issuing bonds.