Bonds Are Frequently Issued at Amounts Greater or Less Than

question 6

Essay

Bonds are frequently issued at amounts greater or less than face value. Describe how the market interest rate relative to the contractual interest rate affects the selling price of bonds.

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Definitions:

Debenture Bond

A type of debt instrument not secured by physical assets or collateral but backed only by the issuer's creditworthiness and general reputation.

Unsecured Bond

A bond that is not backed by collateral or specific assets and is solely based on the issuer's creditworthiness.

Face Value

The nominal or original value of a security or currency as stated by the issuer, not necessarily its market value.

Credit Rating

An assessment of the creditworthiness of a borrower, either a business or a governmental entity, reflecting their ability to repay borrowed money.