Question

Which statement or statements apply to a bond which is selling at a premium?

I. The market value exceeds the par value.
II. The selling rate is above 100.
III. It is sold by corporations, not by the government.

a. I and II
b. I only
c. III only
d. I, II, and III

Answer 1

The correct statements regarding a bond selling at a premium are that the market value exceeds the par value, and the selling rate is above 100. Statement III is incorrect because both corporations and governments can issue such bonds. A rising market interest rate after a bond's issuance leads to a decrease in its value.

Step-by-step explanation:

When considering which statements apply to a bond that is selling at a premium, options I and II are relevant. A bond selling at a premium means that:

• The market value exceeds the par value (I).
• The selling rate is above 100, which indicates a premium (II).

Statement III is incorrect because both corporations and governments can issue bonds that sell at a premium. Therefore, the correct answer to the question is a. I and II.

Additionally, the interest rate that Ford is paying on the borrowed funds can be determined by the coupon rate of the bond. If the market interest rate rises from 3% to 4% after the bond is issued, the value of the bond will decrease because the fixed payments from the bond become relatively less attractive compared to new bonds issued at the higher rates.

Answer 2

It is A. I and II

I got it in the test