If the entity is offering a higher interest rate on debentures than the market believes is appropriate,the market will:
A) Be prepared to pay more than the par value of the debentures, offering a discount.
B) Be prepared to pay less than the par value of the debentures, offering a discount.
C) Be prepared to pay more than the par value of the debentures, offering a premium.
D) Be prepared to pay less than the par value of the debentures, offering a premium.
E) None of the given answers.

Question

Quizplus · Accepted Answer

If the entity is offering a higher interest rate than the market believes is appropriate, the demand for its debentures will increase, and investors will be willing to pay more than the par value of the debentures. This results in offering a premium.

If the Entity Is Offering a Higher Interest Rate on Debentures