A $500,000 bond issue sold for $490,000. Therefore, the bonds:

Sold at a discount because the stated interest rate was higher than the market rate.

Sold for the $500,000 face amount less $10,000 of accrued interest.

Sold at a premium because the stated interest rate was higher than the market rate.

Sold at a discount because the market interest rate was higher than the stated rate.

Question

Giuliana Moody

Business

19 December, 04:58

A $500,000 bond issue sold for $490,000. Therefore, the bonds:

Sold at a discount because the stated interest rate was higher than the market rate.

Sold for the $500,000 face amount less $10,000 of accrued interest.

Sold at a premium because the stated interest rate was higher than the market rate.

Sold at a discount because the market interest rate was higher than the stated rate.

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Answers (1)

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Gilberto Bartlett · Answer 1

The answer is: Sold at a discount because the market interest rate was higher than the stated rate.

Explanation:

The price of a bond is determined by the present value of both the face amount and the interest payments. To calculate the present value we must discount an interest rate on the future cash flows. If a bond is sold at a lower price it means that the interest rate it pays is lower than the market interest rate (at which the cash flows are discounted).