United States Steel Corporation’s (X) 6.65% bonds due in 2037 were reported as selling for 102.8.

Question

Were the bonds selling at a premium or at a discount? Why is United States Steel able to sell its bonds at this price?

The bonds were selling at a fill in the blank 1 of 2
because the market rate of interest for similar quality bonds was fill in the blank 2 of 2
than 6.65%.

Answer 1

The bonds were selling at a premium because the market rate of interest for similar quality bonds was lower than 6.65%.

When bonds are sold at a premium, it means that they are being sold for more than their face value—in this case, 102.8% of the face value. This typically occurs when the coupon rate of the bond (6.65%) is higher than the current market interest rates for similar bonds. Investors are willing to pay more for these bonds because they offer a higher return compared to newly issued bonds with lower rates.