A bond is issued with a face amount of $500,000 and a stated interest rate of 10%. The current market rate of interest is 8%. These bonds will sell at a price that is: Multiple Choice Less than $500,000. The answer cannot be determined from the information provided. More than $500,000. Equal to $500,000.

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Business

Shayla Leonard

15 June, 01:47

A bond is issued with a face amount of $500,000 and a stated interest rate of 10%. The current market rate of interest is 8%. These bonds will sell at a price that is: Multiple Choice Less than $500,000. The answer cannot be determined from the information provided. More than $500,000. Equal to $500,000.

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Answers (1)

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Hines · Answer 1

The correct answer is More than $500,000.

Explanation:

According to the scenario, the given data are as follows:

Face amount of bond = $500,000

Stated interest rate = 10%

Current market interest rate = 8%

So, we can compute the selling price of the bond by analyzing following terms:

If market interest rate is greater than the stated interest rate than the bond will sell at less amount. If stated interest rate is greater than the market interest rate than the bond will sell at a greater amount than face value.

As the stated interest rate (10%) is greater than the market interest rate (8%), the bond will sell at More than $500,000.