If the market rate of interest is greater than the contractual rate of interest, bonds will sell
A) at a premium
B) at face value
C) at a discount
D) only after the stated rate of interest is increased

Question

Quizplus · Accepted Answer

When the market rate of interest is higher than the contractual rate of interest, the bond becomes less attractive to investors, as they can earn more interest by investing elsewhere. This leads to a decrease in demand for the bond and therefore a drop in its price. The bond will sell at a discount to its face value in order to make up for the lower return on investment.

If the Market Rate of Interest Is Greater Than the Contractual