When a Bond Sells at a Premium

question 217

Multiple Choice

When a bond sells at a premium:

• A) The contract rate is below the market rate.
• B) The bond pays no interest.
• C) The contract rate is above the market rate.
• D) It means that the bond is a zero coupon bond.
• E) The contract rate is equal to the market rate.

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Definitions:

Interest

The cost of borrowing money, typically expressed as an annual percentage rate, or the income earned from lending funds or making an investment.

Fair Value Hedge

A hedge of the exposure to changes in fair value of a recognized asset or liability, or an unrecognized firm commitment, that is attributable to a particular risk.

Forward Contract

A financial contract obligating the buyer to purchase, and the seller to sell a specific asset at a predetermined future date and price.

Spot Rates

The current market price at which a particular security can be bought or sold for immediate delivery.