Question

A bond issue with a face amount of $1,200,000 bears interest at the rate of 9%. The current market rate of interest is 10%. These bonds will sell at a price that is:

Answer 1

Answer: The selling price of the bond will be less than $1,200,000

Explanation:

From the question, we are informed that a bond issue with a face amount of $1,200,000 bears interest at the rate of 9% and that the current market rate of interest is 10%.

Since the market rate is 10% which is higher than coupon rate of 9%, this means that the market price for the bond will be smaller than the bond's face value.

Therefore, the selling price of the bond will be less than $1,200,000.