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

Question

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Since the bond was issued at a 5% coupon rate and the market interest rate for comparable bonds is now 6%, the bond's coupon payment is less attractive. Therefore, it will sell at a discount to entice buyers. The annual interest payment is 5% of the par value, which is typically $1,000, so it pays $50 a year in interest.

The Jefferson Company Issued a 5% Coupon Bond Four Years