The Franklin Company issued a 6% bond three years ago at par value. The market interest rate on comparable bonds today is 5%. The Franklin Company bond currently pays a year in interest and the bond sells at a _____________.

Question

Quizplus · Accepted Answer

The bond pays $60 in interest annually (6% of par value). Since the market interest rate is now lower at 5%, the bond's fixed interest payments are more attractive, causing the bond to sell at a premium.

The Franklin Company Issued a 6% Bond Three Years Ago