When a bond sells at a premium:
A) The contract rate is below the market rate.
B) The bond pays no interest.
C) The contract rate is above the market rate.
D) It means that the bond is a zero coupon bond.
E) The contract rate is equal to the market rate.

Question

Quizplus · Accepted Answer

When a bond sells at a premium, it means that the contract rate (or coupon rate) is above the market rate. This is because investors are willing to pay more than the face value of the bond in order to receive the higher interest payments offered by the bond's contract rate.

When a Bond Sells at a Premium