Final answer:
A company that issues a $100,000 bond at 6% and receives $112,300 has sold the bond at a 112.3% premium. Bond prices are impacted by interest rates and are quoted as a percentage of face value. Understanding the bond's premium or discount helps investors assess its relative value.
Step-by-step explanation:
When a company issues a bond above its face value, it is said to have issued the bond at a premium. In this case, the company issued a $100,000 bond at 6% but received proceeds of $112,300. The bond's issuance can be quoted as having been sold at 112.3% of its face value (i.e., $112,300 / $100,000).
Bonds are commonly quoted as a percentage of their face (or par) value. A bond quoted at 100% is at par, below 100% is at a discount, and above 100% is at a premium. This quoted percentage gives investors an understanding of the bond's price relative to its face value.
For example, consider a similar situation with a simple two-year bond. Issued for $3,000 at an interest rate of 8%, the bond pays $240 in interest annually. If interest rates rise, the present value of the bond, considering the discount rate, would decrease, and the bond would be worth less. Conversely, if the bond's interest rate were less than the market interest rate, the bond's price calculated using present value would reflect a discount as well.