Question

O’Shea Inc. issued bonds at a face value of $100,000, a rate of 6%, and a 5-year term for $98,000. From this information, we know that the market rate of interest was ________.

1. more than 6%
2. less than 6%
3. equal to 6%
4. cannot be determined from the information given.

Answer 1

If Issued price < Par value, then Coupon rate will be less than the Market rate

If Issued price > Par value, then Coupon rate will be greater than the Market rate

Since, the bonds were issued for $98,000 lower than the par value $100,000

coupon rate = 6%

Since the Issued price less than the Par value, Market rate will be more than the coupon rate of 6%.

So, Answer is More than 6%