Question

Southern Airlines issued 25-year bonds with a maturity value of $2 million.  Which statement is true if...

Southern Airlines issued 25-year bonds with a maturity value of $2 million.  Which statement is true if the bonds were issued at a premium?

The yield rate of interest exceeded the coupon rate

The cash rate of interest exceeded the coupon rate

The yield rate of interest was less than the coupon rate

The yield rate of interest was greater than the maturity value of the bonds
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Answer #1

Correct answer---------The yield rate of interest was less than the coupon rate.

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When yield rate of interest or Market rate of interest is less than the coupon rate then the bond is issued at premium because of the high value of bond since it attracts more investors.

Cash rate and coupon rate are the same thing so they are always the same rate.

When bond coupon rate is lower than market rate then bond is issued at discount. This is because the bond seller has to compensate investors for the lower coupon rate.

Bonds are issued at Par when coupon rate and market rate are same.

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