Enhanced, Inc., sold 500 of its $2,000, 8 3/4% bonds to yield 9%. Determine if the...
Enhanced, Inc., sold 500 of its $2,000, 8 3/4% bonds to yield 9%.
Determine if the bonds were issued at par, premium or discount. Explain your responses
Homework Answers
Answer
- The Bonds are issued at a DISCOUNT.
- This is because the coupon rate (8 ¾ %) is LESS than market rate of interest (9%)
- Any intelligent investor would not invest in a bond that pays 8 ¾% Interest when he/she can earn a 9% interest by investing in the market.
- Hence, in order to attract these investors, the bond issuer will issue the bonds at DISCOUNT.
- When Bonds are issued at Discount, the investors have to PAY LESS for the bonds, and earn interest on the FACE VALUE, which is more than the issue price.
- To sum it up:
>Bonds will be issued at a discount to attract the investors.
Add Answer to:
Enhanced, Inc., sold 500 of its $2,000, 8 3/4% bonds to yield
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