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: Multiple Choice The answer cannot be determined from the information provided. Equal to $500,000. More than $500,000. Less than $500,000.

Answer 1

Answer:

Equal to $500,000

Explanation:

As we know that if the market interest rate is higher than the bond interest rate,  than the bond is sold at discount, and if the market interest rate is less than the bond interest rate than the bond is sold at the premium.

And, if the market interest rate equal to the bond interest rate,  then the bond is sold at par

Since as we can see that  both the bond interest rate and the market interest rate is 10% that means the bond is sold at par i.e $500,000