When a Bond Sells at a Premium

question 81

Multiple Choice

When a bond sells at a premium:

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

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Definitions:

Nominal Interest Rates

Nominal interest rates are the stated interest rates on financial products without adjustment for inflation.

Rate of Inflation

The Rate of Inflation is the pace at which the general level of prices for goods and services is rising, eroding purchasing power.

Real Interest Rates

The interest rate adjusted for inflation, representing the real cost of borrowing and the real yield to lenders or investors.

Usury Laws

Regulations that impose a maximum interest rate that may be charged on loans.