Question

Pink Shades Hotels is preparing a bond offering with a 6 percent, semiannual coupon and a face value of $1,000. The bonds will be repaid in 30 years and will be sold at par. Given this, which one of the following statements is incorrect? The bonds will become discount bonds if the market rate of interest increases. The bonds will pay 60 interest payments of $30 each. The bonds will sell at a premium if the market rate is 6.5 percent. The bonds will initially sell for $1,000 each. The final payment will be in the amount of $1,030.

Answer 1

the bonds will sell at a premium if the market rate is 6.5 percent

A bond with interest rate with more than its coupon rate will always sell at a DISCOUNT. This is because since the market is offering the investor a higher rate, he needs to be compensated by getting a discount.