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When a bond sells at a premium the contract rate is above the market rate


If the contract rate is less than the market rate, the bond will sell at an amount less than face (this is known as a discount). If the contract rate is greater than the market rate, the bond will sell at an amount greater than face (this is known as a premium).

What does it mean when a bond sells at a premium?

A premium bond is a bond trading above its face value or costs more than the face amount on the bond. A bond might trade at a premium because its interest rate is higher than the current market interest rates. The company's credit rating and the bond's credit rating can also push the bond's price higher.

When a bond sells at a premium the contract?

When bonds are issued at a discount, its coupon rate or contract rate is lower than the market rate. When bonds are issued at a premium, its coupon rate or contract rate is higher than the market rate.

When bonds are selling at premium the effective rate is higher than the stated rate?

When a bond is sold at a discount, the stated rate of interest is lower than the effective rate of interest on the bond. In contrast, when a bond is sold at a premium, the stated rate of interest is higher than the effective rate of interest. 12.

When the contract rate is less than the market rate a bond sells at a premium quizlet?

If the contract rate is less than the market rate, the bond sells at a discount. If the contract rate is equal to the market rate, the bond sells at par. On December 31, 2019, Spearmint, Inc., issued $450,000 of 9 percent, 3-year bonds for cash of $461,795.