If a debt security's coupon rate is below the prevailing market interest rate on comparable securities, that security will sell at a price:
A) Above its par value
B) At a discount from par
C) At a premium above par
D) That is indeterminate without more information about the security
E) None of the above

Question

Quizplus · Accepted Answer

When a debt security's coupon rate is below the prevailing market interest rate on comparable securities, it becomes less attractive to investors, who can get a higher return elsewhere. Therefore, the security will sell at a discount from its par value to compensate investors for the lower coupon rate.

If a Debt Security's Coupon Rate Is Below the Prevailing