Question

Under what circumstances will bonds be issued at discount or at premium?

Under what circumstances will bonds be issued at discount or at premium?

Homework Answers

Answer #1

Bond will be issued at premium if the coupon rate on such bond is higher than prevailing market interest rate.For example It meansif currently the market is giving 5% return , our bond will give 6% return. So we will charge extra amount from the investors.

Vice- versa , if the bond coupon rate is lower than market interest rate we wil have to issue it at discount. Because since we are giving less return we have to sell it at a lower price , otherwise no one will purchase our bond. Instead everyone would like to invest in market.

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