The Cases Company issues $800 000 of 7%, 10- year debentures on 31 March 2013. The debenture pays interest on 31 March and 30 September. Which of the following statements is TRUE?
A)If the market rate of interest is 8%, the debentures will issue at par.
B)If the market rate of interest is 8%, the debentures will issue at a discount.
C)If the market rate of interest is 8%, the debentures will issue above par.
D)If the market rate of interest is 8%, the debentures will issue at a premium.

Question

Quizplus · Accepted Answer

If the market rate of interest is higher than the coupon rate (7%), the debentures will issue at a discount to make them more attractive to investors.

The Cases Company Issues $800 000 of 7%, 10- Year