ch 10

5 Written Questions

1. difference between the selling price and par when the bond is sold for less than par
2. stated rate of interest on bonds
3. rate of cash interest per period stated in the bond contract
4. just like straight-line depreciation but on a bond
5. another name for bond principle, or maturity amount of a bond. also known as face amount

5 Matching Questions

1. effective-interest amortization
2. trustee
3. cash interest payments
4. why a corporation would want to issue bonds instead of stock
5. major disadvantages associated with issuing bonds

1. a stockholders main control, interest expense is tax-deductible, and the impact on earnings is positive
2. b interest expense for a bond is computed by multiplying the current unpaid balance times the market rate of interest that existed on the date the bonds were sold
3. c risk of bankruptcy and negative impact on cash flows
4. d computed by multiplying the principal amount times the interest rate stated in the bond contract
5. e independent party appointed to represent the bondholders

5 Multiple Choice Questions

1. stated rate is more than market rate
   1. bond premium
   2. principle
   3. par value
   4. premium
2. the mix of debt and equity a company uses to finance its operations
   1. par value
   2. trustee
   3. coupon rate
   4. capital structure
3. bond contract that specifies the legal provisions of a bond issue
   1. principle
   2. trustee
   3. premium
   4. indenture
4. current rate of interest on a debt when incurred. also known as yield or effective-interest rate
   1. stated rate
   2. indenture
   3. cash interest payments
   4. market interest rate
5. amount that is payable at the maturity date and on which the periodic cash interest payments are computed
   1. bond discount
   2. bond premium
   3. principle
   4. bond principal

5 True/False Questions

1. bond certificate → amount that is payable at the maturity date and on which the periodic cash interest payments are computed

   True        False

2. principle → stated rate is more than market rate

   True        False

3. discount → stated rate is less than market rate

   True        False

4. convertible bond → bond may be converted to common stock of the issuer

   True        False

5. bond premium → difference between the selling price and par when the bond is sold for more than par

   True        False