A bond has a $1,000 par value,makes annual interest payments of $100,has 5 years to maturity,cannot be called,and is not expected to default.The bond should sell at a premium if market interest rates are below 10% and at a discount if interest rates are greater than 10%.

Question

Quizplus · Accepted Answer

This is because if market interest rates are below 10%, the bond's fixed 10% annual interest rate becomes more attractive to investors, causing the bond to sell at a premium above its par value. Conversely, if market interest rates are greater than 10%, the bond's fixed 10% annual interest rate becomes less attractive to investors compared to other investments with higher interest rates, causing the bond to sell at a discount below its par value.

A Bond Has a $1,000 Par Value,makes Annual Interest Payments