A Company Releases a Five-Year Bond with a Face Value

question 63

Multiple Choice

A company releases a five-year bond with a face value of $1000 and coupons paid semiannually.If market interest rates imply a YTM of 6%,which of the following coupon rates will cause the bond to be issued at a premium?

• A)3%
• B)4%
• C)6%
• D)8%

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Definitions:

Consumer Surplus

The gap between the aggregate sum consumers can and are willing to spend on a good or service versus the amount they really spend.

Equilibrium

The state in which market supply and demand balance each other, resulting in stable prices and quantities.

Market Equilibrium

A state in which market supply and demand balance each other, resulting in stable prices and quantities.

Producer Surplus

The difference between what producers are willing to accept for a good or service versus what they actually receive, often illustrated in economic surplus models.