2. Explain the meaning of each of the following terms as they relate to a bond issue: (a) convertible and (b) callable. 3. If you asked your broker to buy you a 12% bond when the market interest rate for such bonds was 11%, would you expect to pay more or less than the face amount for the bond? Explain. 4. A corporation issues $26,000,000 of 9% bonds to yield interest at the rate of 7%. (a) Was the amount of cash received from the sale of the bonds greater or less than $26,000,000? (b) Identify the following amounts as they relate to the bond issue: (1) face amount, (2) market or effective rate of interest, (3) contract rate of interest, and (4) maturity amount. 5. If bonds issued by a corporation are sold at a discount, is the market rate of interest greater or less than the contract rate? 6. The following data relate to a $2,000,000, 8% bond issued for a selected semiannual interest period: (a) Were the bonds issued at a discount or at a premium? (b) What is the unamortized amount of the discount or premium account at the beginning of the period? (c) What account was debited to amortize the discount or premium? 7. Bonds Payable has a balance of $5,000,000, and Discount on Bonds Payable has a balance of $150,000. If the issuing corporation redeems the bonds at 98, is there a gain or loss on the bond redemption?
2. Explain the meaning of each of the following terms as they relate to a bond issue: (a) convertible and (b) callable. 3. If you asked your broker to buy you a 12% bond when the market interest rate for such bonds was 11%, would you expect to pay more or less than the face amount for the bond? Explain. 4. A corporation issues $26,000,000 of 9% bonds to yield interest at the rate of 7%. (a) Was the amount of cash received from the sale of the bonds greater or less than $26,000,000? (b) Identify the following amounts as they relate to the bond issue: (1) face amount, (2) market or effective rate of interest, (3) contract rate of interest, and (4) maturity amount. 5. If bonds issued by a corporation are sold at a discount, is the market rate of interest greater or less than the contract rate? 6. The following data relate to a $2,000,000, 8% bond issued for a selected semiannual interest period: (a) Were the bonds issued at a discount or at a premium? (b) What is the unamortized amount of the discount or premium account at the beginning of the period? (c) What account was debited to amortize the discount or premium? 7. Bonds Payable has a balance of $5,000,000, and Discount on Bonds Payable has a balance of $150,000. If the issuing corporation redeems the bonds at 98, is there a gain or loss on the bond redemption?
Essentials Of Investments
11th Edition
ISBN:9781260013924
Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Chapter1: Investments: Background And Issues
Section: Chapter Questions
Problem 1PS
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2. Explain the meaning of each of the following terms as they relate to a bond issue: (a) convertible and (b) callable.
3. If you asked your broker to buy you a 12% bond when the market interest rate for such bonds was 11%, would you expect to pay more or less than the face amount for the bond? Explain.
4. A corporation issues $26,000,000 of 9% bonds to yield interest at the rate of 7%. (a) Was the amount of cash received from the sale of the bonds greater or less than $26,000,000? (b) Identify the following amounts as they relate to the bond issue: (1) face amount, (2) market or effective rate of interest, (3) contract rate of interest, and (4) maturity amount.
5. If bonds issued by a corporation are sold at a discount, is the market rate of interest greater or less than the contract rate?
6. The following data relate to a $2,000,000, 8% bond issued for a selected semiannual interest period:
(a) Were the bonds issued at a discount or at a premium? (b) What is the unamortized amount of the discount or premium account at the beginning of the period? (c) What account was debited to amortize the discount or premium?
7. Bonds Payable has a balance of $5,000,000, and Discount on Bonds Payable has a balance of $150,000. If the issuing corporation redeems the bonds at 98, is there a gain or loss on the bond redemption?
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