Bonds are sold at a premium if the: Group of answer choices Company will have to pay a premium to retire the bonds Issuing company has a better reputation than other companies in the same business Market rate of interest was less than the face rate at the time of issue Market rate of interest was more than the face rate at the time of issue

Question

Jamir Bradshaw

Business

23 September, 13:22

Bonds are sold at a premium if the: Group of answer choices Company will have to pay a premium to retire the bonds Issuing company has a better reputation than other companies in the same business Market rate of interest was less than the face rate at the time of issue Market rate of interest was more than the face rate at the time of issue

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Kelly Bartlett · Answer 1

Market rate of interest was less than the face rate at the time of issue

Explanation:

Bonds represent debt instruments whereby the borrower raises long term finance agreeing to pay the lender a fixed amount of coupon payments periodically as well as principal repayment upon redemption.

The market rate of interest or yield to maturity of a bond represents the expectation of bond holders as it is the rate of return earned on similarly priced bonds by the investors in the market.

In case the issuer issues bonds wherein the coupon rate of payment is greater than the market rate of interest, such bonds are referred to as bonds priced at a premium. Since yield to maturity rate is inversely related to bond price. Higher the yield to maturity, lower would be the price of bonds and vice versa.