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erma4kov [3.2K]
4 years ago
13

Years ago, a bond was issued at par with a 7% coupon. This year, new issue bonds of similar credit quality are being issued at 1

0%. Which statement is TRUE
Business
1 answer:
earnstyle [38]4 years ago
7 0

Answer: A. The new bonds will be issued at a premium to the current price of the 7% bonds

Explanation:

The New Bonds will have a coupon of 10% which will be higher than the 7% that was previous on offer for the same type of bonds.

This means that the same type of bond is giving a greater return than before. Investors will therefore want more of the bond giving out better returns and will not mind paying a higher price to get it.

For this reason, the bonds issued this year with a 10% coupon will sell at a Premium (higher than) the bonds that were issued years ago that only have a coupon rate of 7%.

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3 years ago
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