Question

A bond with an annual coupon payment of $100 originally sold at par for $1,000. Market interest rates are currently 12%. This bond would be selling at

Answer 1

The answer is:

discount; the buyer for the below market coupon rate

Step-by-step explanation:

The bond discount is the difference by which a bond's market value is lower than its face value. That is, a bond is selling at discount if its coupon payment is less than the market yield(interest rate).

The coupon payment is $100 and the face value is $1,000. Therefore, coupon rate is 10% [(100/1000) x 100percent].

So coupon rate < market interest rate.

And it is paying at discount to compensate the buyer for the below coupon rate.