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A bond is issued with a face amount of $500,000 and a stated interest rate of 10%. The current market rate of interest is 8%. These bonds will sell at a price that is: Multiple Choice Less than $500,000. The answer cannot be determined from the information provided. More than $500,000. Equal to $500,000.

Respuesta :

Answer:

The correct answer is More than $500,000.

Explanation:

According to the scenario, the given data are as follows:

Face amount of bond = $500,000

Stated interest rate = 10%

Current market interest rate = 8%

So, we can compute the selling price of the bond by analyzing following terms:

  • If market interest rate is greater than the stated interest rate than the bond will sell at less amount.
  • If stated interest rate is greater than the market interest rate than the bond will sell at a greater amount than face value.

As the stated interest rate ( 10%) is greater than the market interest rate (8%), the bond will sell at More than $500,000.

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