Question

6. A bond has a market rate of 10% contract rate of 8%, and a face value of 400,00. Which is true about the bond?

The issue price will be equal to 400,000
The issue price will be more then 400,000
The issue price will be less than 400,000
None of the above

Answer 1

"The issue price will be less than 400,000".

Explanation:

The issue price of a bond is determined by the market rate, contract rate, and face value. If the market rate is greater than the contract rate, then the bond will be issued at a discount, meaning the issue price will be less than the face value. If the market rate is less than the contract rate, then the bond will be issued at a premium, meaning the issue price will be more than the face value.

In this case, the market rate is 10%, which is greater than the contract rate of 8%. Therefore, the bond will be issued at a discount, and the issue price will be less than the face value of $400,000. So the correct answer is "The issue price will be less than 400,000".