A $25,000 bond issue with a stated interest rate of 5%, when the market rate of interest is 4%, means that the bond will sell for:

Question

Quizplus · Accepted Answer

When the stated interest rate of a bond (5% in this case) is higher than the market interest rate (4% here), the bond is more attractive to investors because it pays more interest than what is currently available in the market. Therefore, investors are willing to pay more than the face value of the bond, meaning it will sell for more than $25,000.

A $25,000 Bond Issue with a Stated Interest Rate of 5