When a bond sells at a premium:
A) The contract rate is above the market rate.
B) The contract rate is equal to the market rate.
C) The contract rate is below the market rate.
D) It means that the bond is a zero coupon bond.
E) The bond pays no interest.

Question

Quizplus · Accepted Answer

When a bond sells at a premium, it means that investors are willing to pay more than the face value of the bond because the contract rate (i.e., coupon rate) is higher than the current market rate. Therefore, choice A is the correct option.

When a Bond Sells at a Premium