Asked by ERICA ROSENBAUM on May 10, 2024
Verified
Bonds dated June 1 with a face value of $100, 000 that are issued for $99, 400 on June 1 have a stated interest rate
A) that is more than the yield rate
B) that is less than the yield rate
C) that is equal to the yield rate
D) that may be more or less than the yield rate, but there is not enough information given to determine which
Yield Rate
The yield rate, often referred to as the yield, is the income return on an investment, such as the interest or dividends received, expressed as a percentage of the investment's cost.
Stated Interest Rate
The interest rate explicitly stated on a loan or investment agreement, not accounting for compounding.
Face Value
The nominal or dollar value printed on a security or financial instrument, such as a bond or stock certificate, representing its worth at issuance.
- Calculate bond issuance price and understand factors affecting bond pricing.
- Distinguish between the characteristics of bonds sold at a discount, at par, and at a premium.
Verified Answer
NM
Nicole MacklamMay 13, 2024
Final Answer :
B
Explanation :
When a bond is issued for less than its face value, it is said to be issued at a discount. This implies that the effective interest rate on the bond is higher than the stated interest rate, which is the rate printed on the face of the bond. Therefore, the stated interest rate is lower than the yield rate.
Learning Objectives
- Calculate bond issuance price and understand factors affecting bond pricing.
- Distinguish between the characteristics of bonds sold at a discount, at par, and at a premium.