When the market rate of interest is greater than the contract rate of interest, the bonds should sell at
A)a premium
B)par value
C)a discount
D)face value

Question

Quizplus · Accepted Answer

When the market rate of interest is greater than the contract rate of interest, it means that investors can earn a higher rate of return by investing in bonds with higher market rates. As a result, they are less likely to be interested in purchasing bonds with a lower contract rate, causing the bonds to sell at a discount (below par value) in order to compensate for the lower return.

When the Market Rate of Interest Is Greater Than the Contract