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True or False: When the market rate of interest is higher than a bond's coupon rate, the bond will sell at a discount.

User Mkus
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Answer:

True. When the market rate of interest is higher than a bond's coupon rate, the bond will typically sell at a discount. This is because investors are willing to pay less for a bond with a lower fixed interest rate (coupon rate) when they can obtain higher returns by investing in bonds with higher market interest rates. As a result, the bond's market price is lower than its face value, which creates a discount.

Conversely, when the bond's coupon rate is higher than the prevailing market interest rate, the bond may sell at a premium because investors are willing to pay more for the higher fixed interest payments it offers compared to other available investments.

3 votes

Answer:

True.

When the market rate of interest is higher than a bond's coupon rate, the bond will sell at a discount. This is because investors can get higher yields by investing in bonds with higher coupon rates available in the market. In order to make the lower-coupon bond more attractive, it must be sold at a discount. This means that its price will be lower than its face value.

Step-by-step explanation:

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