Question

Round Dot Inns Is preparing a bond offering with a coupon rate of 6 percent, paid semiannually, and a face value of $1,000. The bonds will mature In 10 years and will be sold at par. Given this, which one of the following statements Is correct?

a.The bonds will sell at a premium if the market rate is 5.5 percent.
b. The bonds will become discount bonds if the market rate of interest declines.
c.The bonds will pay 10 interest payments of $60 each.
d. The bonds will initially sell for $1,030 each.
e. The final payment will be in the amount of $1,060.

Answer 1

Answer:

a.The bonds will sell at a premium if the market rate is 5.5 percent.

Explanation:

Following information provided in the question

Coupon rate = 6%

Face value = $1,000

Time period = 10 years

And if we consider the interest rate 5.5%

So as we can see than the interest rate or market rate is less than the coupon rate or we can say that the coupon rate is more than the market rate so the bond is sell at a premium