Question

Match when bonds sell at face value, a premium, or a discount.

a. Premium
b. Discount
c. Face value

1. When the stated rate is greater than the market rate of interest.
2. When the stated rate is less than the market rate of interest.
3. When the stated rate equals the market rate of interest.

Answer 1

Bonds can sell at a premium, a discount, or at face value depending on the relationship between the stated rate and the market rate of interest.

Step-by-step explanation:

A bond can sell at a premium, a discount, or at face value depending on the relationship between the stated rate and the market rate of interest.

1. Premium: When the stated rate is greater than the market rate of interest, the bond will sell at a premium. This means that investors are willing to pay a higher price for the bond because it offers a higher interest rate than the prevailing market rates.
2. Discount: When the stated rate is less than the market rate of interest, the bond will sell at a discount. This means that investors are only willing to pay a lower price for the bond because it offers a lower interest rate than the prevailing market rates.
3. Face value: When the stated rate equals the market rate of interest, the bond will sell at its face value. This means that investors are willing to pay the exact amount that the bond will pay back at maturity, as it offers an interest rate in line with current market rates.