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.