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 becomes 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

Market interest rates and bond prices have inverse relationship. If market interest rates reduc below coupon rate, bond value will increase and vice-versa.

Hence, correct option is (c)

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