Green Roof Inns is preparing a bond offering with a 6 percent, semiannual coupon

Question

Green Roof Inns is preparing a bond offering with a 6 percent, semiannual coupon and a face value of $1,000. The bonds will be repaid in 10 years and will be sold at par. Given this, which one of the following statements is correct?

The bonds will become discount bonds if the market rate of interest declines.
The bonds will pay 10 interest payments of $60 each.
The bonds will sell at a premium if the market rate is 5.5 percent.
The bonds will initially sell for $1,030 each.
The final payment will be in the amount of $1,060.

Explanation / Answer

correct answer is C
if market rate decreases, price of bond increases and it sells at a premium


if market interest declines, bond value increases
it is semiannual coupon so it pays twice a year
if market rate decreases, price of bond increases and it sells at a premium
bond will initially sell for 1000
final payment is also 1000

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