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      Question

      A company issues ₹10 crore worth of bonds at a coupon

      rate of 8% annually, while the market interest rate is 10%. The bonds are sold at a discount. What is the most likely reason behind this pricing?
      A The bonds are risk-free Correct Answer Incorrect Answer
      B The bonds are zero coupon Correct Answer Incorrect Answer
      C The coupon rate is lower than market rate Correct Answer Incorrect Answer
      D The bonds have a long maturity period Correct Answer Incorrect Answer

      Solution

      When the coupon rate is lower than the prevailing market rate, the bond must be offered at a discount to attract investors.

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