Bonds with a face value of $100,000 were sold at an effective rate of 10% to yield cash proceeds in excess of $100,000. It is apparent the bonds had a:
A) stated rate less than 10%
B) market rate less than 10%
C) stated rate greater than 10%
D) market rate greater than 10%

Question

Quizplus · Accepted Answer

If the effective rate is greater than the stated rate, it means that the bond was sold at a premium. This implies that investors were willing to pay more than the face value of $100,000, which would occur if the stated rate was greater than the market rate. Therefore, the stated rate must be greater than 10%.

Bonds with a Face Value of $100,000 Were Sold at an Effective