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Daniels's bonds payable carry a stated interest rate of 5%, and the market rate of interest is 7% The price of the Dan els's bonds will be at

A. a premium
B. face value
C. par value
D. a discount

User Andy Theos
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Final answer:

Daniels's bonds, with a stated interest rate of 5% in a market where the interest rate is 7%, will be priced at a discount because their rate is less attractive than the market rate.

Step-by-step explanation:

When evaluating Daniels's bonds, it's important to compare the stated interest rate on the bonds with the market interest rate. Here, Daniels's bonds have a stated interest rate of 5%, while the market rate is 7%. Since the market interest rate is higher than the bond's interest rate, the price of the bonds will be less than their face value. Therefore, the bonds will sell at a discount. Bond values are inversely related to market interest rates; when market rates go up, existing bond prices fall, and vice versa.

The price of Daniels's bonds will be at D. a discount.

The stated interest rate of 5% on Daniels's bonds is lower than the market rate of interest of 7%. When the market rate of interest is higher than the stated interest rate of a bond, the bond is typically sold at a discount.

User Ridox
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