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What occurs when a bonds stated interest rate is less than the market interest rate?
Wiki User
∙ 11y ago
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.
Wiki User
∙ 11y ago
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Is the price at which bonds sell determined by the interaction of stated rates of interest and market rates of interest?
Yes, the price at which bonds sell are determined by the interaction of stated rates of interest and market rates of interest.
What happens when issuing bonds payable when the market interest rate is less than the stated interest rate?
premium
When a bonds stated interest rate is less than the market interest rate is the rate at a discount or premium?
When the coupon rate (the contractual periodical "interest" payments) are lower than the yield (the market required return) the bond will be in discount. This discount makes up for the low value of the coupons.
How does the federal reserve raise an interest rate?
Through open market sales or bonds.
How are bond prices affected when the Federal Reserve lowers the interest rate?
When the Federal Reserve lowers interest rates, the value of outstanding bonds will increase. The increase in the value of bonds is due to the market price of the bonds adjusting to reflect the lower interest rates available on new bonds. Investors with bond holdings enjoy an increase in the value of their holdings when the Fed cuts rates. However, new investors in bonds will receive a lower rate of interest and if the Fed later raises rates, bond investors will experience a decrease in the market value of their bonds.
Is the price at which bonds sell determined by the interaction of stated rates of interest and market rates of interest?
Yes, the price at which bonds sell are determined by the interaction of stated rates of interest and market rates of interest.
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.
What happens when issuing bonds payable when the market interest rate is less than the stated interest rate?
premium
When a bonds stated interest rate is less than the market interest rate is the rate at a discount or premium?
When the coupon rate (the contractual periodical "interest" payments) are lower than the yield (the market required return) the bond will be in discount. This discount makes up for the low value of the coupons.
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.
How does the federal reserve raise an interest rate?
Through open market sales or bonds.
What is the interest rate on a corporate bond?
The prices of corporate bonds fluctuate as they are traded on the bond market. Like government bonds, a corporate bond pays a fixed amount of interest each .
How are bonds in the stock market defined?
by the interest rate they pay thier face value and their term
A firm has an issue of 1000 par value bonds with a 12 percent stated interest rate outstanding The issue pays interest annually and has 10 years remaining to its maturity date If bonds of similar r?
1268.20
How are bond prices affected when the Federal Reserve lowers the interest rate?
When the Federal Reserve lowers interest rates, the value of outstanding bonds will increase. The increase in the value of bonds is due to the market price of the bonds adjusting to reflect the lower interest rates available on new bonds. Investors with bond holdings enjoy an increase in the value of their holdings when the Fed cuts rates. However, new investors in bonds will receive a lower rate of interest and if the Fed later raises rates, bond investors will experience a decrease in the market value of their bonds.
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
Bonds usually sell at a premium when?
when interest rates in the general market fall. This makes the interest rate on the bond relatively more attractive.
