Question

If the market rate of interest is greater than the contract rate of interest, the bonds will sell for a.their face amount. b.more than their face amount. c.less than their face amount. d.None of these choices are correct.

Answer 1

Answer:

C. Less than their face value

Explanation:

Contract rate also known as coupon rate is the is the interest percentage rate stated on the face of a note or bond. A bond that has a lower contract rate than market rate, i.e. market interest rate is greater than the coupon rate, will be sold at prices lower than face value. This is as a result of opportunity investors buying similar bonds that gives better returns.

Answer 2

Answer:

C) less than their face amount.

Explanation:

When a bond sells at a lower price than its face value, it is sold at a discount. That means that the price that investors pay for the bond will be lower than its face value because the bond's coupon rate is lower than the market's interest rate.

When a bond is sold at a higher price than its face value, it is sold at a premium, since its coupon rate id higher than the market rate.