Which of the following statements is correct?
A) If the market rate of interest associated with a bond is higher than the coupon rate of that bond,the bond will sell at a premium.
B) If the market rate of interest associated with a bond is lower than the coupon rate of that bond,the bond will sell at a discount.
C) If the market rate of interest associated with a bond is equal to the coupon rate of that bond,the bond will sell at par value.
D) None of the above are correct.
E) All of the above are correct.

Question

Quizplus · Accepted Answer

This is known as the par value, or face value, of the bond. When the coupon rate and the market rate match, investors are indifferent between buying the bond or other investments because they can earn the same return elsewhere. Therefore, the bond will sell at the par value. Options A and B are incorrect because if the market rate is higher than the bond's coupon rate, the bond will sell at a discount, and if the market rate is lower than the bond's coupon rate, the bond will sell at a premium. Option D is incorrect because at least one of the statements is correct, and option E is incorrect because only one statement is correct.

Which of the Following Statements Is Correct