Skylar Corporation Issued $50,000,000 of Its 10% Bonds at Par

Multiple Choice

Skylar Corporation issued $50,000,000 of its 10% bonds at par on January 1, 2014. On December 31, 2014 the bonds were trading on the bond exchange at 102.5. Since the issue date, what has happened to the market rate of interest?

A) The market rate increased.
B) The market rate decreased.
C) The market rate stayed the same.
D) The change in the market rate can not be determineD.The bonds sold for par value on January 1, 2014 so the stated interest rate equaled the market rate of interest. As of December 31, 2014, the bonds were selling at a premium, which means that the stated rate was greater than the market rate on December 31, 2014. Therefore, the market rate of interest decreased.