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Contract rate is known as a coupon rate (because older securities actually had coupons that were clipped and sent to paying banks for periodic interest). It is the fixed rate of interest for which a particular bond was issued.
Market rate is actually known as yield (prevailing interest rate for new bonds) and yields change with prevailing interest rates.
Yields are closely aligned with prevailing interest rates.
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Will the bond proceeds always be less than the face amount of the bonds when the contract rate is greater than the market rate of interest?
Yes, when the contract rate is lower than the market rate you have to take less money for people to be willing to accept the lower rate.
What occurs when a bonds stated interest rate is less than the market interest rate?
Since the current market interest rate is higher, it is more attractive to a new investor then the bond with a lower interest rate. Thus, the price of the lower interest rate bond has to decline to be competitive with new bonds in the market.
What happens when issuing bonds payable when the market interest rate is less than the stated interest rate?
premium
What factors may cause a change in the market and fair value of fixed rate notes and bonds?
One of the key factors that can change the market and fair value of fixed rate notes and bonds is an increase or decrease in market interest rates. Even though a bond has a fixed rate, it's value is dependent on current yields in the market and the value of the bond will move inversely to interest rate changes.
How does the federal reserve raise an interest rate?
Through open market sales or bonds.
Will the bond proceeds always be less than the face amount of the bonds when the contract rate is greater than the market rate of interest?
Yes, when the contract rate is lower than the market rate you have to take less money for people to be willing to accept the lower rate.
What occurs when a bonds stated interest rate is less than the market interest rate?
Since the current market interest rate is higher, it is more attractive to a new investor then the bond with a lower interest rate. Thus, the price of the lower interest rate bond has to decline to be competitive with new bonds in the market.
Who determines the rate of interest paid on a bond?
Bonds have a predetermined rate of interest called the stated or contract rate, which is established by the board of directors.
What happens when issuing bonds payable when the market interest rate is less than the stated interest rate?
premium
What factors may cause a change in the market and fair value of fixed rate notes and bonds?
One of the key factors that can change the market and fair value of fixed rate notes and bonds is an increase or decrease in market interest rates. Even though a bond has a fixed rate, it's value is dependent on current yields in the market and the value of the bond will move inversely to interest rate changes.
How does the federal reserve raise an interest rate?
Through open market sales or bonds.
Why might the market value of a loan differ from its outstanding balance?
The balance of a loan depends on the original contract rate, whereas the market value of the loan depends on the current market interest rate.
How are bonds in the stock market defined?
by the interest rate they pay thier face value and their term
What occurs when a bond's stated interest rate is less than the market interest rate?
Since the current market interest rate is higher, it is more attractive to a new investor then the bond with a lower interest rate. Thus, the price of the lower interest rate bond has to decline to be competitive with new bonds in the market.
True or false A corporation that issues bonds at a discount will recognize interest expense at a rate which is greater than the market interest rate?
True
An open market sale by the Fed?
open market sale of bonds is retractionary monetary policy and lowers the money supply, this raises the interest rate.
Why market value of a bond will fall when the interest rate rise on new bonds of equal risk?
Because the bond is no longer making money at the rate of current prices. Its future value is less than other equally face bonds so its market price dropes to compensate
