Asked by Carissa Gulli on May 03, 2024
Verified
If bonds are issued at a premium, the stated interest rate is
A) higher than the market rate of interest
B) lower than the market rate of interest
C) too low to attract investors
D) adjusted to a higher rate of interest
Stated Interest Rate
The annual interest rate declared on a financial instrument, such as a loan or bond, not necessarily reflecting fees or compounding.
Market Rate
The prevailing interest rate available in the marketplace on investments, loans, and deposits, determined by supply and demand factors.
- Differentiate between bonds issued at a premium, face value, and discount.
Verified Answer
BH
Brandy HendersonMay 07, 2024
Final Answer :
A
Explanation :
When bonds are issued at a premium, it means that the price paid for the bond is higher than the face value, resulting in a lower yield for the investor. The stated interest rate must be higher than the prevailing market rate of interest to make the bond more attractive to investors and justify the premium price.
Learning Objectives
- Differentiate between bonds issued at a premium, face value, and discount.