Question

Karson Inc. issues 10-year bonds with a maturity value of $200,000. If the bonds are issued at a premium, this indicates that:

a. the contractual interest rate exceeds the market interest rate.
b. the market interest rate exceeds the contractual interest rate.
c. the contractual interest rate and the market interest rate are the same.
d. no relationship exists between the two rates.

Answer 1

When a bond is issued at a premium, it means that the contractual interest rate exceeds the market interest rate.

Step-by-step explanation:

When a bond is issued at a premium, it means that the bond is sold at a price higher than its face value or maturity value. In this case, Karson Inc. is issuing 10-year bonds with a maturity value of $200,000, but they are selling them at a premium. This indicates that the contractual interest rate is higher than the market interest rate.