Which of the following describes what happens when bonds are issued when the market interest rate is less than the stated interest rate?
A)The bonds are issued at a premium.
B)The bonds are issued at less than their face value.
C)It raises the effective interest rate above the stated rate of interest.
D)The bonds are issued at a premium and the effective interest rate is higher than the stated rate.

Question

Quizplus · Accepted Answer

When the market rate of interest is lower than the stated rate of interest,bonds will sell at a premium so as to reduce the effective rate to the market rate.On the other hand,when the market rate of interest is higher than the stated rate of interest,bonds will sell at a discount so as to increase the effective rate of interest to the market rate.

Which of the Following Describes What Happens When Bonds Are