If the stated interest rate on a bond is 8% and the market interest rate is 7%,the bond will be issued at a price above the par value of the bond.

Question

Quizplus · Accepted Answer

Since the stated interest rate is higher than the market interest rate, the bond will be more attractive to investors and demand for the bond will be higher. This will cause the price of the bond to be bid up above its par value in order to achieve an effective yield of 7%, which is what investors can earn elsewhere in the market.

If the Stated Interest Rate on a Bond Is 8