Which statement regarding the sale of bonds is NOT true?
A)Bonds are always sold at their market price.
B)The market price is the present value of the bond.
C)The present value of the bond is the present value of the principal plus the present value of the cash interest payment.
D)The contract rate and the effective rate have no effect on the selling price of the bond.

Question

Quizplus · Accepted Answer

The contract rate and the effective rate can have a significant impact on the selling price of the bond because they determine the cash interest payment that the investor will receive. If the contract rate or effective rate is higher than the market interest rate, the bond will sell at a premium (above par value), whereas if the contract rate or effective rate is lower than the market interest rate, the bond will sell at a discount (below par value).

Which Statement Regarding the Sale of Bonds Is NOT True