Question

indicate whether a bond will sell at a premium (p), discount (d), or face value (f) for each of the following conditions: a. the stated rate of interest is higher than the market rate. b. the market rate of interest is equal to the stated rate. c. the market rate of interest is less than the stated rate. d. the stated rate of interest is less than the market rate. e. the market rate of interest is higher than the stated rate.

Answer 1

The relationship between the stated rate and the market rate determines whether a bond will sell at a premium, discount, or face value.

Step-by-step explanation:

To determine whether a bond will sell at a premium, discount, or face value, we need to consider the relationship between the stated interest rate and the market interest rate.

If the stated rate of interest is higher than the market rate, the bond will sell at a discount. This is because investors can find other bonds in the market that offer a higher interest rate.

If the market rate of interest is equal to the stated rate, the bond will sell at its face value. The bond is considered to be fairly priced.

If the market rate of interest is less than the stated rate, the bond will sell at a premium. Investors are willing to pay more for the bond because it offers a higher interest rate than other bonds in the market.

In summary, the relationship between the stated rate and the market rate determines whether a bond will sell at a premium, discount, or face value.