The U.S.government will pay Turner Company $2,500,000 each six months, equal to 2.5% of the $100 million face amount of the treasury bonds (5% annual coupon rate, paid in two installments each year), and will repay the $100 million at the end of five years.At the time Turner Company purchases the bonds, the market prices these bonds to yield Turner Company 6% annually (3% each six months).The bonds are classified as held to maturity. Because the market requires a _____ than the _____ on the bonds, the bonds will sell on the market for a _____

Question

Quizplus · Accepted Answer

The market yield of 6% is higher than the stated interest rate of 5% on the bonds, indicating that the bonds are less desirable on the market. Therefore, the bonds will sell at a discount, not a premium. Choice A and B are incorrect because they suggest that the market yield is lower than the stated interest rate, which is not the case. Choice D is incorrect because it suggests that the market yield is lower than the stated interest rate, resulting in a discount, which is not consistent with the information given. Choice E is incorrect because it combines the market and stated rates, which isn't clear in the problem.

The USGovernment Will Pay Turner Company $2,500,000 Each Six Months, Equal