1 points Question 7 When the market interest rate is 7% and the coupon rate is...
1 points
Question 7
-
When the market interest rate is 7% and the coupon rate is 10%, a bond sells at
a discount.
liquidation value.
a premium.
par.
Cannot be determined without more information
Homework Answers
Solution: The Answer is C) A Premium
Notes:
1) Here coupon rate 10% is higher than the market interest rate 7%, which means company is paying more interest than interest paying in market/industry. So, Bonds are selling at premium.
2) Option A Discount is not correct because here bonds are premium bonds.
3) Option B Liquidation Value is not correct because Liquidation Value means value of any asset when it is sold in short span of time without considering various selling options available. So, it is not correct.
4) Option D Par is not correct because par means market rate and coupon rate are same. Here both rates are different.
5) Option E Cannot be determined without more
information is not correct because here we determined
bonds as premium bonds with the help of rates given in the
question.
.
Add Answer to:
1 points
Question 7
When the market interest rate is 7% and the coupon rate is...
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below its par value
at its par value
above its par value
The bond price cannot be determined
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