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?

 

The bonds will become discount bonds if the market rate of interest declines.

The final payment will be in the amount of $1,060.

The bonds will initially sell for $1,030 each.

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

The bonds will pay 10 interest payments of $60 each.

 

Since when the market rate of interest is 5.5 percent but the company is paying 6 percent interest so issuer company will charge premium to compensate the extra interest it is paying

Value of bond = $1038.07

So the Statement " The bonds will initially sell for $1,030 each" is incorrect

Statement " The bonds will pay 10 interest payments of $60 each" is also incorrect as there will be 20 Interest payment of $30 Each as period is 10 Years and Interest is paid Semi annually.

The final payment will be in the amount of $1,060 is Also incorrect as final payment will $1000 ( Which is face Value of Bond)

Statement " The bonds will become discount bonds if the market rate of interest declines" is also incorrect because with decrease in Market interest value of bond will increase as it will be paying 6% fixed Interest.