Ask Question
22 August, 14:17

A bond issue with a face amount of $496,000 bears interest at the rate of 10%. The current market rate of interest is also 11%. These bonds will sell at a price that is:

+5
Answers (1)
  1. 22 August, 14:37
    0
    Answer: Less than $496000.

    Explanation:

    This is the case where market rate of interest is greater than the coupon rate.

    current market rate of interest = 11%

    face amount = $496000

    bears interest at the rate of 10%

    In this case, buyer will purchase these bond below the face value and hence bonds are issued at a discount. So, the price of these bonds are less than the face value.

    This is due to the higher market interest rate because if a buyer can get higher return from market, so why would he buy these bonds.

    ∴ These bonds will sell at a price that is less than $496000.
Know the Answer?
Not Sure About the Answer?
Find an answer to your question 👍 “A bond issue with a face amount of $496,000 bears interest at the rate of 10%. The current market rate of interest is also 11%. These bonds ...” in 📗 Business if the answers seem to be not correct or there’s no answer. Try a smart search to find answers to similar questions.
Search for Other Answers