Given the information below, which bond(s) will be issued at a premium? $$\begin{array} { | l | c | c | c | c | }
\hline & \underline { \text { Bond 1 } } & \underline { \text { Bond 2 } } & \underline { \text { Bond 3 } } & \underline { \text { Bond 4 } } \
\hline \text { Stated Rate of Return } & 5 \% & 10 \% & 7 \% & 10 \% \
\hline \text { Market Rate of Return } & 7 \% & 8 \% & 7 \% & 9 \% \
\hline
\end{array}$$

Question

Given the information below, which bond(s) will be issued at a premium? $$\begin{array} { | l | c | c | c | c | } 
\hline & \underline { \text { Bond 1 } } & \underline { \text { Bond 2 } } & \underline { \text { Bond 3 } } & \underline { \text { Bond 4 } } \
\hline \text { Stated Rate of Return } & 5 \% & 10 \% & 7 \% & 10 \% \
\hline \text { Market Rate of Return } & 7 \% & 8 \% & 7 \% & 9 \% \
\hline
\end{array}$$

Quizplus · Accepted Answer

Bonds are issued at a premium when their coupon rate is higher than the prevailing market interest rate. Based on the information given, we know that Bonds 2 and 4 have coupon rates of 8% and the current market interest rate is 6%, which means they will be issued at a premium. Bond 1 has a coupon rate of 6%, which is the same as the market interest rate, so it will be issued at par. Bond 3 has a coupon rate of 4%, which is lower than the market interest rate, so it will be issued at a discount.

Given the Information Below, Which Bond(s) Will Be Issued at a Premium