Question

If the market rate of interest is greater than the contractual rate of interest, bonds will sell :
a. at a premium.
b. at face value.
c. at a discount.
d. only after the stated rate of interest is increased.

Answer 1

Answer:

c. at a discount.

Explanation:

If the market interest rate is greater than the contractual rate of interest, the bond will sell at a discount. It means that the bond is selling at a rate less than its par value.

If the market interest rate is less than the contractual rate of interest, the bond will sell at a premium. It means that the bond is selling at a rate higher than its par value.

If the market interest rate is equal to the contractual rate of interest, the bond will sell at par or at face value.