Final answer:
The statement that bonds issued at a premium have an issue price greater than face value is true. A bond is issued at a premium when the market interest rate falls below the bond's coupon rate, increasing its value to offer a higher yield.
A is the correct answer.
Step-by-step explanation:
If a bond is issued at a premium, the issue price is indeed greater than face value, so the correct answer would be A. true. A premium bond occurs when the prevailing interest rate falls below the bond's coupon rate after it has been issued.
As a result, the bond's value increases because it offers a higher return (interest payments) relative to the market rate. Given the importance of interest rates in the bond market, a premium is the additional amount an investor is willing to pay above the face value of the bond to lock in the higher interest rate that it offers.
On the contrary, if interest rates rise, the bond will sell at a discount, below the face value, to make it attractive to potential investors. This dynamic reflects the present value of expected future payments.