Roth, Inc. issued convertible bonds at their $1,000 par value 5 years ago The bo

Question

Roth, Inc. issued convertible bonds at their $1,000 par value 5 years ago The bonds currently sell for $1,050. The bonds still have the same AA rating.    Since the bonds were issued: Market interest rates have increased The bonds are selling at a discount The bonds are selling at par The bonds are selling at a premium None of the above Roth, Inc. issued convertible bonds at their $1,000 par value 5 years ago The bonds currently sell for $1,050. The bonds still have the same AA rating.    Since the bonds were issued:

Explanation / Answer

There is inverse relationship between interest rate changes in the market price of outstanding bonds. This is due to inverse relationship between bonds interest rate and marker price.

Bonds a debt instrument of the capital market. And market price of the bond is totally depend on the coupon rate of the bonds and rate of interest in the market. When the coupon rate of bond is more than market rate of interest than the market value of the Bond is greater than its par value. When the coupon rate of bond is the less than its market rate than market price of the bond is less than its par value

So as per the above, Bonds are selling at more than its par value it means this are selling at premium.

Answer = Option 4 =  The bonds are selling at a premium

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