If a bond has a contract rate of interest of 6%, but the discount rate of interest is 8%, the bond
A) will sell at a discount (less than face value).
B) will sell at a premium (more than face value).
C) may sell at either a premium or a discount.
D) will sell at its face value.

Question

Quizplus · Accepted Answer

When the contract rate (coupon rate) of a bond is lower than the discount rate (market rate), the bond will sell at a discount because investors can get a higher return elsewhere, so they will pay less for the bond.

If a Bond Has a Contract Rate of Interest of 6