Financial Accounting 2 Unit 5

A bond that trades at less than face value is trading at a ......
Discount
Premium
Par value
Fair market value
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Terms in this set (17)
A bond that trades at less than face value is trading at a ......
Discount
Premium
Par value
Fair market value
Discount
The purpose of discount or premium bond pricing is to
Adjust the price of the bond to ensure the company receives a specific amount of cash through financing
To provide the maximum return to bondholders/investors
To ensure that the return on the bond is equivalent to the demand rate of investors at the time of trade
Minimize the costs of financing through bonds for the issuing corporation
To ensure that the return on the bond is equivalent to the demand rate of investors at the time of trade
Which of the following will affect the maturity value of the bond?
Market rate of interest
Coupon rate of interest
Purchase price of the bond
None of the above: the maturity value is fixed
None of the above: the maturity value is fixed
$100,000 in bonds payable with a coupon rate of 6% will result in semiannual interest payments of...
$6000
$600
$3000
$300
$3000
A bond will trade at a premium when....
The market rate is less than the coupon/contract rate on the bond
The market rate is more than the coupon/contract rate on the bond
The market rate and coupon rate are the same
The market rate is less than the coupon/contract rate on the bond
Which of the following statements accurately describes the coupon/contract rate?
The varying rate of return demanded by investors
Will vary based on price paid for bond
Is paid to bondholders annually
Is a fixed rate of interest paid semi-annually to the bondholder
Is a fixed rate of interest paid semi-annually to the bondholder
Which of the following statements about straight line amortization is not true?
Will result in a varying amount of amortized interest over the life of the bond
Can be used only when use of this method produces no material difference from the results of the effective interest method
Applies a proportionate amount of discount/premium to interest over the life of the bond
Will, over the life of the bond, bring the bonds from book value to their maturity value
Will result in a varying amount of amortized interest over the life of the bond
A bond that trades at more than face value is trading at a.....

Discount
Premium
Par value
Fair market value
Premium
A bond will trade at par value when.....
The market rate is less than the coupon/contract rate on the bond
The market rate is more than the coupon/contract rate on the bond
The market rate and coupon rate are the same
The market rate and coupon rate are the same
$100,000 in 8%, 5 year bonds were issued in a 10% market for $ 92,000. The amount of bond discount amortized to the first semiannual period using the effective interest method should be_________.
$800
$1600
$600
Cannot be determined with provided data.
$600
Which of the following statements about bonds is not true: Bonds are typically issued in $1000 increments Bonds can trade on the market just like stocks Bonds represent ownership in a corporation Bonds carry a fixed interest rateBonds represent ownership in a corporationA bond will trade at a discount when.... The market rate is less than the coupon/contract rate on the bond The market rate is more than the coupon/contract rate on the bond The market rate and coupon rate are the sameThe market rate is more than the coupon/contract rate on the bondWhich of the following statements does not accurately describe the market rate? The varying rate of return demanded by investors The fixed interest rate of return promised to bondholders Also referred to as demand rate, or effective interest rate Plays a key role in determining the price of the bondThe fixed interest rate of return promised to bondholdersA bond is a form of ________________________________ financing.DebtWhen a bond trades at face value, it is trading at.... par value a discount a premium fair market valuepar valueWhich of the following statements is not true? When bonds are traded at a premium or discount, this amount is amortized to bond interest over the life of the bond. When bonds trade at a premium, this decreases the cost of financing through the bonds payable When bonds trade at a discount, this increases the cost of financing through the bonds payable The amount of return for the bondholder/investor will vary based on the price of the bondThe amount of return for the bondholder/investor will vary based on the price of the bondWhich of the following best describes how the price of the bond is determined? The price of the bond is determined by the amount that the issuing company determines The price of the bond will vary based on the relationship between the contract and market rates The maturity value of the bond determines its price The par value of the bondThe price of the bond will vary based on the relationship between the contract and market rates