A company issues a $100,000, 9% bond and receives $99,000 (ignoring transaction costs). This implies that the effective interest rate is less than 9%.

Name: A company issues a $100,000, 9% bond and receives $99,000 (ignoring transaction costs). This implies that the effective interest rate is less than 9%.
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Question

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The effective interest rate is higher than 9% because the company received less than the face value of the bond, indicating that investors require a higher yield for their investment.

A Company Issues a $100,000, 9% Bond and Receives $99,000