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choli [55]
3 years ago
7

If the market rate of interest is 8%, a $50,000, 7%, 20-year bond that pays interest semiannually would sell at an amount

Business
1 answer:
vesna_86 [32]3 years ago
3 0

Answer:

a. less than face value

Explanation:

In this issue, we will equate the interest rate on the market with the interest rate on the bond.  

As we see, the market interest rate, i.e. 8%, is higher than the bond interest rate, i.e. 8%, than the bond is sold at discount, and if the market interest rate is lower than the bond interest rate than the bond is sold at a premium.

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An investor holds a FMC corporate bond with a face value of $5000, a coupon rate of 4%, and semiannual payments that matures on
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