Question

In: Accounting

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.


Related Solutions

Determine the market price of a $649,000, 10-year, 10% (pays interest semiannually) bond issue sold to...
Determine the market price of a $649,000, 10-year, 10% (pays interest semiannually) bond issue sold to yield an effective rate of 12%. (Round factor values to 5 decimal places, e.g. 1.25125 and final answer to 0 decimal places, e.g. 458,582.) Click here to view factor tables Market price of bond issue $
1. Consider a perpetuity that pays $100 per year. The market rate of interest is 10%....
1. Consider a perpetuity that pays $100 per year. The market rate of interest is 10%. a. What is the PV of the perpetuity? b. What is the PV of the perpetuity three years from now? c. What is the present value of the perpetuity "n" years from now? d. Under what circumstances does the value of a perpetuity change?
Pecos Manufacturing has just issued a 15​-year, 11​% coupon interest​ rate, 1,000​-par bond that pays interest...
Pecos Manufacturing has just issued a 15​-year, 11​% coupon interest​ rate, 1,000​-par bond that pays interest annually. The required return is currently 18​%, and the company is certain it will remain at 18​% until the bond matures in 15 years. a. Assuming that the required return does remain at 18​% until​ maturity, find the value of the bond with​ (1) 15 years, (2) 12​ years, (3) 9​ years, (4) 6​ years, (5) 3​ years, (6) 1 year to maturity. .
Determine the market price of a $209,000, 10-year, 8% (pays interest semiannually) bond issue sold to...
Determine the market price of a $209,000, 10-year, 8% (pays interest semiannually) bond issue sold to yield an effective rate of 10%.
A 10-year annual payment corporate bond has a market price of $1,050. It pays annual interest...
A 10-year annual payment corporate bond has a market price of $1,050. It pays annual interest of $100 and its required rate of return is 9 percent. Is the bond fairly priced, underpriced, or overpriced? Also find the magnitude of the mispricing (if any).
A 11​-year bond pays interest of $28.30 ​semiannually, has a face value of 1,000 , and...
A 11​-year bond pays interest of $28.30 ​semiannually, has a face value of 1,000 , and is selling for 738.53. What are its annual coupon rate and yield to​ maturity?
A 11​-year bond pays interest of $26.10 ​semiannually, has a face value of $1,000​, and is...
A 11​-year bond pays interest of $26.10 ​semiannually, has a face value of $1,000​, and is selling for $723.25. What are its annual coupon rate and yield to​ maturity? The annual coupon rate is nothing​%. ​(Round to two decimal​ places).The yield to maturity is nothing​%. ​(Round to two decimal​ places).
9- A 11​-year bond pays interest of $ 28.60semiannually, has a face value of $ 1000...
9- A 11​-year bond pays interest of $ 28.60semiannually, has a face value of $ 1000 and is selling for $772.07. What are its annual coupon rate and yield to​ maturity? 13- Cyberdyne Systems is issuing a series of zero coupon bonds to raise​ $500M to fund research and development at its Skynet division. Each bond will have a face value of ​$1,000 and will mature in 19 years. The yield on the bond is 4.5​%. What is the fair...
Maggie, Inc. Issued a 10 year, $100,000 face bond with a 10% interest rate. The bond...
Maggie, Inc. Issued a 10 year, $100,000 face bond with a 10% interest rate. The bond pays the interest for 10 years and then pays the principal of $100,000 at the end of the 10th year. (Solve 1-3) 1.) If the current interest rates are 10% at the time of the issue, on the date of the issue Maggie Inc. will receive: a.) $100,000 b.) $91,954.77 c.) $73,734.81 d.) $88,699.55 2.) If the current interest rates are 12% at the...
The market price is ​$1,075 for a 19​-year bond ​($1,000 par​ value) that pays 11 percent...
The market price is ​$1,075 for a 19​-year bond ​($1,000 par​ value) that pays 11 percent annual​ interest, but makes interest payments on a semiannual basis ​(5.5 percent​ semiannually). What is the​ bond's yield to​ maturity?
ADVERTISEMENT
ADVERTISEMENT
ADVERTISEMENT