Which one of the following is the reason that bonds may sell at a discount or pr

Question

Which one of the following is the reason that bonds may sell at a discount or premium?

Select one:

A. The bond issuer adjusted the coupon rate to match that of other bond issues

B. Market conditions caused the coupon rate of interest to change between the time the bond agreement was written and the date the bonds were actually issued to investors

C. The market yield rate fluctuated between the time the bond agreement was written and the date the bonds were actually issued to investors

D. The bond issuer failed to consider the market yield rate when the bond agreement was created

Explanation / Answer

There is an inverse relationship between interest rate changes and changes in the market price of outstanding bonds.

If the market rate of interest is more than coupon rate than the bonds are sold at discount to match the market interest rate. and if the coupon rate is more than market rate than bonds are sold at premium for match the market rate of interest .

Coupon rates one decided than there is no change in the life time of the bonds but market rate are always changing and because of this the bonds are sell at discount or premium.

So As per the above,

Answer = Option C =The market yield rate fluctuated between the time the bond agreement was written and the date the bonds were actually issued to investors

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