When the market's required rate of return for a particular bond is much less than its coupon rate, the bond is selling at:
Correct answer: A. Premium
- A. Premium
- B. Discount
- C. Par
- D. Cannot be determined without more informationCredit & Lending
Explanation
When the required return is below the bond’s coupon rate, its interest payments are more attractive than prevailing market returns. Investors therefore bid its price above face value, so it sells at a premium.
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Business finance explains how organisations plan, obtain and use money while balancing risk, return and liquidity. Topics include financial statements, time value of money, budgeting, working capital, capital structure, sources of finance, investment appraisal and cost of capital. Capital budgeting evaluates long-term projects, whereas working capital manages day-to-day operations.
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