If the entity is offering a higher interest rate on debentures than the market believes is appropriate,the market will:
A) be prepared to pay more than the par value of the debentures, offering a discount.
B) be prepared to pay less than the par value of the debentures, offering a discount.
C) be prepared to pay more than the par value of the debentures, offering a premium.
D) be prepared to pay less than the par value of the debentures, offering a premium.

Question

Quizplus · Accepted Answer

If the entity is offering a higher interest rate on debentures than the market believes is appropriate, investors will be willing to pay more than the par value of the debentures to earn that higher interest rate. This is known as a premium. Therefore, the market will be prepared to pay more than the par value of the debentures, offering a premium.

If the Entity Is Offering a Higher Interest Rate on Debentures