If bonds are issued at a discount, it means that the
A)financial strength of the issuer is suspect.
B)market interest rate is lower than the coupon interest rate.
C)market interest rate is higher than the coupon interest rate.
D)bondholder will receive effectively less interest than the coupon interest rate.

Question

Quizplus · Accepted Answer

If bonds are issued at a discount, it means that the market interest rate is higher than the coupon interest rate. This is because the bond's price is lower than its face value or the amount it will mature for. The bond issuer may need to offer the bonds at a discount to make them more attractive to investors due to concerns about their financial strength. Bondholders will receive the full coupon interest rate on the bond, but effectively less interest than the coupon rate due to the lower purchase price.

If Bonds Are Issued at a Discount, It Means That