Question

The $1,000 face value bonds issue by the Springfield Fabrication Corporation are perceived by investors as being less attractive than other bonds sold by other businesses at the same time. The most likely selling price for these bonds in the market would be:
a. $1,000
b. $1,200
c. $875
d. $1,100

Answer 1

Answer:

Correct option is (c)

Explanation:

Face value of bond is $1,000. If investors feel that bond issued by Springfield is less attractive than other bonds, this means either the bond is offering a coupon rate lower than market interest rate prevailing in the market as compared to other bonds.

In this case, bond will be sold at a price lower than its face value. This is also called discount bonds. Price of the bond falls as  investors feel they can buy a similar bond that offers better returns.

Out of all  options, $875 is lower than face value of $1,000, so, bond would be most likely sold at $875.