The contract interest rates and market interest rates of bonds is sometimes different. Why? The market interest rates of corporate bonds are locked in for the term of the bond maturity. Investors want the best rate so bond issuers frequently change their contact rate. There is a lag between the time a corporation decides to issue bonds and the time the bonds are actually issued to the market. The Federal Reserve Bank (FRB) decides that the bond contract rate is out of compliance for similar risk categories.
The contract interest rates and market interest rates of bonds is sometimes different. Why? The market interest rates of corporate bonds are locked in for the term of the bond maturity. Investors want the best rate so bond issuers frequently change their contact rate. There is a lag between the time a corporation decides to issue bonds and the time the bonds are actually issued to the market. The Federal Reserve Bank (FRB) decides that the bond contract rate is out of compliance for similar risk categories.
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
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Question
The contract interest rates and market interest rates of bonds is sometimes different. Why?
The market interest rates of corporate bonds are locked in for the term of the bond maturity.
Investors want the best rate so bond issuers frequently change their contact rate.
There is a lag between the time a corporation decides to issue bonds and the time the bonds are actually issued to the market.
The Federal Reserve Bank (FRB) decides that the bond contract rate is out of compliance for similar risk categories.
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