If the market rate of interest is 10%, a $10,000, 12%, 10-year bond that pays interest semiannually would sell at an amount
A) less than face value
B) equal to the face value
C) greater than face value
D) The answer cannot be determined from the information given.

Question

Quizplus · Accepted Answer

Since the bond's coupon rate (12%) is higher than the market interest rate (10%), the bond will sell for more than its face value. Investors are willing to pay a premium for a bond that offers a higher return than the current market rate.

If the Market Rate of Interest Is 10%, a $10,000