The question is incomplete. The complete question is,
A bond issue with a face amount of $400,000 bears interest at the rate of 8%. The current market rate of interest is 9%. These bonds will sell at a price that is:
More than $400,000.
Equal to $400,000.
Less than $400,000.
The answer cannot be determined from the information provided.
Answer:
The bond sells at a price less than $400000
Explanation:
The coupon rate of bonds is the interest rate at which the bond will pay the interest. When the coupon rate of a bond is less than the market interest rate or the Yield to Maturity (YTM), the bond sells at a discount in the market. On the other hand, if the coupon rate of bond is greater than the market interest rate, the bond sells at a premium.
As the coupon rate of the given bond is 8% which is less than the market interest rate of 9%, the bond sells at a discount. Thus, the price at which the bond sells is less than $400000.
