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

Question

Quizplus · Accepted Answer

When bonds are issued at a discount, it indicates that the market interest rate is higher than the contractual interest rate set by the issuer. This means investors require a higher yield than what the bond is offering in its coupon payments, leading to the bond being sold for less than its face value to compensate for the lower interest rate it pays compared to the current market rate.

If Bonds Are Issued at a Discount, It Means That