In: Accounting
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.
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.