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XYZ Company is in the process of issuing bonds. The bonds have a stated interest rate of 4%, which is 2% below the current market rate. What effect will the two interest rates have on the bond issue price?
A. The issue price will be above the bond's face value.
B. The issue price will equal the bond's face value.
C. The issue price will be below the bond's face value.

Respuesta :

beritop1089

Answer:

C. The issue price will be below the bond's face value

Explanation:

Issuing new bonds with a stated interest rate of 2% below the market rate means that the issuing company will pay investors(bondholders) a coupon amount that is less than what the market is currently offering. Due to this reason, investors will not be willing to pay a higher price to receive lower coupon payments for the life of the bond. Therefore, the issuing price will  be below the bond's face value.

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