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If a bond is issued at 101, the stated rate of interest was:____. a. higher than the market rate of interest. b. lower than the market rate of interest. c. equal to the market rate of interest. d. not
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11 votes
11 votes
If a bond is issued at 101, the stated rate of interest was:____.

a. higher than the market rate of interest.
b. lower than the market rate of interest.
c. equal to the market rate of interest.
d. not related to the market rate of interest.

User Brandon Ling
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1 Answer

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7 votes

Answer: a. higher than the market rate of interest.

Step-by-step explanation:

When a bond is trading above its par value, this bond is called a premium bond. Premium bonds result when the stated interest / Coupon of the bond is higher than the market interest rate. Reason being that it would increase demand in the bond.

In this scenario, we can assume that this bond is trading over par because par is usually $100. As the bond is trading over par, it means that this is a premium bond and that its interest is higher than the market's interest.

User InActive
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