A bond issue with a face amount of $500,000 bears interest at the rate of 7%.The current market rate of interest is 8%.These bonds will sell at a price that is:

Question

Quizplus · Accepted Answer

When the market rate of interest is higher than the bond's coupon rate (in this case, 8% > 7%), the bond's price will be lower than its face value because investors can get a better return elsewhere. Therefore, the bonds will sell at a price that is less than $500,000.

A Bond Issue with a Face Amount of $500,000 Bears