question archive A bond issue with a face amount of $1,100,000 bears interest at the rate of 10 %
A bond issue with a face amount of $1,100,000 bears interest at the rate of 10 %
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A bond issue with a face amount of $1,100,000 bears interest at the rate of 10 %. The current market rate of interest is 11%. These bonds will sell at a price that is: Multiple Choice
Equal to $1,100,000.
The answer cannot be determined from the information provided.
More than $1100.000.
Less than $1100.000.
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Answer: Less than $1,100,000 is correct
Explanation:
Since the market interest rate is more then the bond interest rate, the bond will be sold at a price less than its face value. This is done to compensate the loss borne by investor due to the investment made in less interest rate investment. As redeemable value (bonds will be redeemed at par value) of the bond will be more than the issue price, the difference will compensate such loss.
