Question

A bond issue with a face amount of $495,000 bears interest at the rate of 7%. The current market rate of interest is 8%. These bonds will sell at a price that is:

Answer 1

Answer: Less than $495,000.

Step-by-step explanation:

The options are:

a. Equal to $495,000.

b. The answer cannot be determined from the information provided.

c. Less than $495,000.

d. More than $495,000.

It should be noted that a bond will be sold at a discount when the market interest rate is more than the stated interest rate.

Due to the lower interest rate, the investors will pay less for the bonds. Therefore, based on the information given, the bonds will sell at a price that is less than $495,000.

Therefore, the correct option is C.