Question

a bond issue with a face amount of $500,000 bears interest at the rate of 10%. the current market rate of interest is also 10%. these bonds will sell at a price that is: group of answer choices equal to $500,000. more than $500,000. less than $500,000. the answer cannot be determined from the information provided.

Answer 1

The Bond will sell at a price that is equal to $500,000 (OPTION A).

Bond: Bonds are fixed-income securities that reflect loans from investors to borrowers (typically corporate or governmental).

A bond can be compared to an agreement outlining the terms of the loan and the associated payments between the lender and borrower.

Interest rates and bond prices are inversely correlated. Accordingly, bond prices decrease as interest rates rise and increase when interest rates fall.

In a portfolio, bonds continue to offer these advantages whether yields are rising or dropping. I mean, both stocks and bonds may experience a short-term price fall during times of rising interest rates. The price of the bonds will decrease as they react to increased interest rates.

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