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When the Market Rate of Interest Is Less Than the Contract

question 114

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When the market rate of interest is less than the contract rate of interest, the bonds should sell at


Definitions:

Discount Rate

The interest rate charged to commercial banks and other depository institutions for loans received from the central bank.

Rate of Return

The gain or loss of an investment over a specified period, expressed as a percentage of the investment's initial cost.

Bond Yield

The return an investor realizes on a bond, calculated as the annual interest payment divided by the bond's current market price.

Face Value

The nominal value printed on a bond, currency, ticket, or other financial instrument, representing its legal value rather than market value.

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