question archive If the market interest rate is greater than the contractual interest rate, bonds will sell only after the stated interest rate is increased at a discount at a premium at face value
If the market interest rate is greater than the contractual interest rate, bonds will sell only after the stated interest rate is increased at a discount at a premium at face value
Subject:BusinessPrice:2.87 Bought7
If the market interest rate is greater than the contractual interest rate, bonds will sell
only after the stated interest rate is increased
at a discount
at a premium
at face value
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Answer:
Contractual interest rate and market interest rate are two major aspects to decide the price of bond. Contractual interest rate is the interest rate stated on a bond where as market interest rate is the investors demand for loaning fund. If contractual interest rate is lower than market rate, the value of bond decreases than the face value. When a bond trades at a price less than its face value, is known as discount bond.
Bonds are sold as discount when the market interest rate is higher than the stated rate of bond.
Hence option “at a discount” is correct answer.
