234k views
3 votes
A bond will sell​ ________ when the stated rate of interest exceeds the required rate of​ return, ________ when the stated rate of interest is less than the required​ return, and​ ________ when the stated rate of interest is equal to the required return.

User Evgenek
by
5.6k points

1 Answer

2 votes

A bond will sell​ at a premium when the stated rate of interest exceeds the required rate of​ return, at a discount when the stated rate of interest is less than the required​ return, and​ equal to the par value when the stated rate of interest is equal to the required return.

Step-by-step explanation:

Premium and discount applies to the value of a bond which can also represent the disparity between a benefit and a loss on an individual's investment. A bond with a cost below 100 is a discount bond and a cost over 100 is a premium bond. Bond prices are moving in the opposite direction of interest rates: bond prices decline as interest rates increase and vice versa. Typically, when a bond is reduced their price decreases. Discounts typically represent an atmosphere of high interest rates or poor quality bonds; premiums imply low interest rates.

User Kitze
by
5.9k points