6. A bond has a price of $1,054.32 and a face value of $1,000. Which term is used to describe the selling price of this bond?
Answer: C
The selling price of the bond is referred to as a premium.
When a bond is sold for more than its face value, it is said to be selling at a premium. In this case, the bond has a price of $1,054.32, which exceeds its face value of $1,000, indicating that it is indeed a premium bond.
A) Par
Par refers to the face value of a bond, which in this instance is $1,000. Since the selling price of the bond is higher than the par value, this option is incorrect as it does not describe the selling price.
B) Discount
A bond is considered to be at a discount when it sells for less than its face value. Given that this bond has a selling price of $1,054.32, which is above its face value, this option is incorrect.
C) Premium
The term premium is used to describe a bond that is sold for more than its face value. Here, the bond’s selling price of $1,054.32 indicates it is selling at a premium, making this option correct.
D) Coupon
The coupon refers to the interest payment that a bondholder receives, typically expressed as a percentage of the face value. It does not relate to the selling price of the bond, therefore this option is incorrect.
Conclusion
The correct term to describe the selling price of the bond in this context is "premium," as it is sold above its face value. All other options fail to accurately represent the pricing situation, with par representing the face value, discount indicating a lower selling price, and coupon relating to interest payments rather than selling price.