A bond is issued for an amount equal to its face value. Which of the following statements most likely would explain why?

Question

Quizplus · Accepted Answer

When a bond's contract rate (the interest rate it pays) is the same as the market rate (the prevailing interest rate at the time of issuance), the bond will be issued at its face value. This is because the bond's payments are exactly what investors would expect given the current market conditions, making the bond neither more nor less attractive than other investments, hence it sells for its face value.

A Bond Is Issued for an Amount Equal to Its