Which of the following statements is true if a​ bond's stated interest rate is higher than the market​ rate?

Question

Question content area bottom
Part 1
A.
The bond will be issued at a discount.
B.
The bond will be issued at a premium.
C.
The bond will be issued for an amount lower than the maturity value.
D.
The bond will be issued at par.

Answer 1

If a bond's stated interest rate (also known as the coupon rate) is higher than the market rate, it means that the bond is more attractive to investors compared to current market offerings. Therefore, investors would be willing to pay more for the bond than its face value.

The correct statement in this case is:

B. The bond will be issued at a premium.

This means the bond is sold for an amount greater than its maturity value.