Skylar Company issued $50,000,000 of its 10% bonds at par on January 1, 2016. On December 31, 2016, the bonds were trading on the bond exchange at 102.5. Since the issue date, what has happened to the market rate of interest?
A)The market rate increased.
B)The market rate decreased.
C)The market rate stayed the same.
D)The change in the market rate can not be determineD.The bonds sold for par value on January 1, 2016, so the coupon rate equaled the market rate of interest.As of December 31, 2016, the bonds were selling at a premium, which means that the coupon rate was greater than the market rate on December 31, 2016.Therefore, the market rate of interest decreased.

Question

Quizplus · Accepted Answer

Since the market rate on December 31, 2016 was lower than the coupon rate, the bonds were trading at a premium. Therefore, the market rate must have decreased since the issue date of the bonds.

Skylar Company Issued $50,000,000 of Its 10% Bonds at Par