Asked by Grace Miller on May 26, 2024
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If bonds are issued at a discount it means that the
A) financial strength of the issuer is suspect.
B) market interest rate is higher than the contractual interest rate.
C) market interest rate is lower than the contractual interest rate.
D) bondholder will receive effectively less interest than the contractual interest rate.
Discount
A reduction from the usual cost of something, often used to encourage prompt payment or increase sales.
Market Interest Rate
The prevailing rate of interest that borrowers and lenders can expect to transact at in the broader financial market, influenced by supply and demand.
Contractual Interest Rate
The rate of interest agreed upon within the terms of a loan or bond agreement, payable to lenders or bondholders.
- Understand the impact of issuing bonds at a discount or premium on the cost of borrowing.
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Learning Objectives
- Understand the impact of issuing bonds at a discount or premium on the cost of borrowing.
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