If the Market Interest Rate Is Higher Than the Face

question 138

Multiple Choice

If the market interest rate is higher than the face interest rate at the date of issuance,bonds will

• A) not sell until the face interest rate is adjusted.
• B) sell at face value.
• C) sell at a discount.
• D) sell at a premium.

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Definitions:

Present Value

The current value of a future sum of money or stream of cash flows given a specified rate of return, used in the evaluation of investment opportunities.

Cash Flow Stream

A series of cash inflows and outflows over a period of time, often used in financial models to determine investment viability or project returns.

Rate of Return

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

Perpetuity

A series of payments of a fixed amount that last indefinitely.