IBM is planning to issue $1,000 bonds with a stated interest rate of 7% and a maturity date of July 15,2019.Interest rates rise in the economy so that similar financial investments pay 9%.IBM will:
A)not be able to issue the bonds because no one will buy them.
B)receive a higher issue price to compensate buyers for the lower stated interest rate.
C)have to accept a lower issue price to attract buyers.
D)have to reprint the bond certificates to change the stated interest rate to 9%.

Question

Quizplus · Accepted Answer

As interest rates in the economy have risen, investors will demand a higher rate of return to invest in the bonds issued by IBM. To attract buyers, IBM will have to accept a lower issue price for the bonds, which will compensate investors for the now lower stated interest rate of 7% compared to similar financial investments paying 9%. Hence, choice C is the best option.

IBM Is Planning to Issue $1,000 Bonds with a Stated