If the market rate of interest is 10%, a $9500, 11%, 10-year bond that pays interest...

If the market rate of interest is 10%, a $9500, 11%, 10-year bond that pays interest annually would sell at an amount

less than face value.

equal to face value.

greater than face value.

that cannot be determined.

Solutions

Expert Solution

Answer is “greater than face value”

If coupon rate is higher than interest rate, bonds will sell at premium.
If coupon rate is equal to interest rate, bonds will sell at par.
If coupon rate is less than interest rate, bonds will sell at discount.

Coupon rate = 11%
Market rate of interest = 10%

Coupon rate is higher than market rate of interest; therefore, the bonds would sell at an amount greater than face value.

ekkarill92 answered 2 years ago

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