Final answer:
The correct answer is option b) greater than the market interest rate.
Step-by-step explanation:
Bonds are issued at a premium when the stated interest rate of the bond is greater than the market interest rate. This means that the bond offers investors a return that is higher than what is currently available in the market, making the bond more valuable. Investors are willing to pay more than the face value of the bond to receive the higher interest payments, hence the bond is sold at a premium.
This is also reflected in present value calculations. If market interest rates decrease after a bond has been issued, the fixed coupon payments of the bond become more attractive as they represent a higher return compared to the new lower market rates. Conversely, if market interest rates increase, the bond is less attractive and may be sold for less than its face value, known as a discount.