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

question 93

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 8%, which of the following coupon rates will cause the bond to be issued at a premium?

• A) 7%
• B) 6%
• C) 8%
• D) 10%

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Definitions:

Reasonable Value

An estimation of the fair or proper cost, worth, or price of goods or services in the marketplace.

Disaffirmed

The act of denying, rejecting, or declaring a contract or agreement void, especially in legal contexts involving minors or parties lacking capacity.

Minor

A person who is below the age of majority, legally considered not old enough to take responsibility for legal decisions.

Mental Impairment

A condition that limits a person's intellectual functioning or emotional wellbeing.