Which of the following statements is correct?
A) Bonds are issued at a price that reflects the stated rate of interest on the day the bond is purchased.
B) If the face rate of interest on a bond is not equal to the market rate of interest, then the company desiring to issue the bonds must reprint its bond certificates.
C) The actual issue price of a bond represents the present value of all future cash flows related to the bond.
D) The market rate of interest has no bearing on the selling price of the bonds.

Question

Quizplus · Accepted Answer

The actual issue price of a bond is determined by calculating the present value of all future cash flows related to the bond, including both the principal and interest payments, using the market rate of interest. Therefore, C is the only statement that accurately reflects how the issue price of a bond is determined. A is incorrect because the stated rate of interest on a bond may not reflect the market rate of interest at the time of purchase. B is incorrect because the face rate of interest on a bond does not need to match the market rate of interest, and companies do not need to reprint their bond certificates. D is incorrect because the market rate of interest is a critical factor in determining the present value of a bond's cash flows and therefore affects the bond's selling price.

Which of the Following Statements Is Correct