Merkel Corporation issues $200,000 face amount bonds with a stated interest rate of 6%. If the market interest rate is 5%, the bonds will issue at premium.
What is a Premium Bond?
A premium bond is one that trades above its face value, or in other words, one that is more expensive than the bond's face value. Because its interest rate is higher than the market's current rates, a bond may trade at a premium.
Another distinct category of bond issued in the UK is a premium bond. A premium bond is also known as a lottery bond in the UK and is issued by the National Savings and Investment Scheme of the British government.
Bonds that trade above their face value or cost more than their face value are referred to as premium bonds. Because its interest rate is higher than those of the current market, a bond may trade at a premium.
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