Case Wines Company issues S805 000 of 8% 10-year bonds on March 31, 2017. The bo

Question

Case Wines Company issues S805 000 of 8% 10-year bonds on March 31, 2017. The bonds pay interest on March 31 and September 30. Which of the following A. tf the market rate of interest is 9%, the bonds will issue at a discount. B. lf the market rate of interest is 9%, the bonds will issue at par. ° C. If the market rate of interest is 9%, the bonds will issue above par. D. If the market rate of interest is 9%. the bonds will issue at a premium. https //es.scribd.co may be represented the 25-year examination period the real rate of interest on 3- Q: Bri inv Pe 1e F0 F4 FS

Explanation / Answer

coupon interest rate of bond=8%

market rate of interest =9%

Answer-A) if the market rate of intetest is 9%,the bonds will be issued at a discount

Reason-since the market rate of interest is more and the investors may earn better return if they invest as per the market rate and in order to motivate them to invest in the bond which is paying less coupon rate we have to offer a discount on the par value of the bond thus as per the above facts the bond will be issued at discount rate because 8% that is coupon rate is less than the market rate that is 9%.

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