A bond issue with a face amount of $500,000 bears interest at the rate of 7%.The current market rate of interest is 8%.These bonds will sell at a price that is:
A)Equal to $500,000.
B)More than $500,000.
C)Less than $500,000.
D)The answer cannot be determined from the information provided.

Question

Quizplus · Accepted Answer

When the market rate of interest is higher than the bond's interest rate, the bond will sell at a discount (less than the face value). Therefore, the bonds will sell for less than $500,000.

A Bond Issue with a Face Amount of $500,000 Bears