Will have a semi-annual coupon rate of 7%, and a Moody\'s rating of Aa2. Bonds o

Question

Will have a semi-annual coupon rate of 7%, and a Moody's rating of Aa2. Bonds of other metals companies with similar maturities and ratings currently yield an average of 6.3%.

A. Reliable's bonds will sell at a price to yield about 6.3% because that is the investors' opportunity cost.

B. Reliable's bonds should yield less than 6.3% because they are new.

C. Reliable's bonds should yield more than 6.3% because they are new.

D. Reliable's bonds should be priced to yield a rate close to the coupon rate.

Explanation / Answer

A. Reliable's bonds will sell at a price to yield about 6.3% because that is the investors' opportunity cost.

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