Bond X and Bond Y are both issued by the same company. Each of the bonds has a face value of $100,000 and each matures in 10 years. Bond X pays 8% interest while Bond Y pays 7% interest. The current market rate of interest is 7%. Which of the following is correct?
A) Both bonds will sell for the same amount.
B) Bond X will sell for more than Bond Y.
C) Bond Y will sell for more than Bond X.
D) Both bonds will sell at a premium.
Answer: B
Seaside issues a bond with a stated interest rate of 10%, face value of $50,000, and due in 5 years. Interest payments are made semi-annually. The market rate for this type of bond is 12%. What is the issue price of the bond (rounded to nearest whole dollar?
A) $83,920.
B) $46,320.
C) $53,605.
D) $50,000.
Answer: B
Given the information below, which bond(s) will be issued at a premium?
Bond 1 Bond 2 Bond 3 Bond 4
Stated Rate of Return 7 % 12 % 10 % 8 %
Market Rate of Return 8 % 10 % 10 % 9 %
A) Bond 1.
B) Bond 2.
C) Bond 3.
D) Bonds 2 and 4.
Answer: B
