Multiple Choice
A bond is issued at par value when:
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11. Long Term Liabilities
Introduction to Bonds and Bond Characteristics
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A bond is issued at par value when:
A
the coupon rate equals the market interest rate
B
the coupon rate is higher than the market interest rate
C
the coupon rate is lower than the market interest rate
D
the bond is sold at a discount to its face value
Verified step by step guidance1
Understand the concept of a bond issued at par value: A bond is issued at par value when its selling price equals its face value. This typically happens when the coupon rate (the interest rate stated on the bond) matches the market interest rate.
Analyze the relationship between the coupon rate and the market interest rate: If the coupon rate is higher than the market interest rate, the bond will be more attractive to investors, and it will likely sell at a premium (above face value).
Consider the scenario where the coupon rate is lower than the market interest rate: In this case, the bond is less attractive to investors, and it will likely sell at a discount (below face value).
Focus on the condition for issuing at par value: The bond is issued at par value only when the coupon rate equals the market interest rate, as this ensures the bond's price matches its face value.
Review the options provided in the problem and identify the correct answer based on the explanation above: The correct answer is 'the coupon rate equals the market interest rate.'
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