Question

Quirk Drugs sold an issue of 30-year, $1,000 par value bonds to the public that carry a 10.85% coupon rate, payable semiannually. It is now 10 years later, and the current market rate of interest is 9.00%. If interest rates remain at 9.00% until Quirk's bonds mature, what will happen to the value of the bonds over time?

A) The bonds will sell at a discount and rise in value until maturity.
B) The bonds will sell at a discount and fall in value until maturity.
C) The bonds will sell at a premium and decline in value until maturity.
D) The bonds will sell at a premium and rise in value until maturity

Answer 1

The bonds will sell at a premium and decline in value until maturity.

Step-by-step explanation:

When the governments and some corporations are in need of money then they achieve this with the issue of bonds. When a buyer buys a bond he is liable to pay the face value of the bond which is obtained as a loan on a date specified and also paid at a regular intervals.

They help us in generating a regular stream of money as bonds pay the interest regularly. When you are at a situation of emergency and raise funds immediately short terms bonds are helpful. In the example given, values of the bonds will sell at a premium and decline in value until maturity.