Please help me understand this Economic question

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$2.00 Please help me understand this Economic question

From Economics: Financial-Markets , Economics: Financial-Markets
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Due on Oct. 24, 2009
Asked on Oct 23, 2009 at 12:42:58PM

Q:

Assume you read the WSJ and see that a bond which has a coupon rate of 5%($50 in interest payments each year) and a face value of $1000(the amount the bond holder will get when the bond matures), is selling for $750. Which of the following could you assume?

The bond is being sold at a discount because the 5% return is lower than the current market rate.

The bond is being sold at a premium because the 5% return is higher than the market rate.

The bond issuer will be required to recall the bond and reprice them.

The Sec will intervene because of the wide price discrepancy.

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Posted on Oct 23, 2009 at 1:10:58PM

A:
Preview: ... bond is being sold at a premium becau ...

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Posted on Oct 23, 2009 at 1:11:12PM

A:
Preview: ... investors in the present won't want to pay the full price, $1000 for the bond that assures $50 payments. Why would they? They could invest their money in other investments that pay the current market rate of more than 5% ...

The full tutorial is about 199 words long .