ACC 201 Chapter 9 MC Without Math
Bond X and Bond Y are both issued by the same company. Each of the bonds has a face value of $100,000 and each matures in 10 years. Bond X pays 8% interest while Bond Y pays 7% interest. The current market rate of interest is 7%. Which of the following is correct? A. Bond X will sell for more than Bond Y. B. Bond Y will sell for more than Bond X. C. Both bonds will sell at a premium. D. Both bonds will sell for the same amount.
A
The true interest rate used by investors to value a bond is called the: A. Market interest rate. B. Cash payment rate. C. Stated interest rate. D. Face interest rate.
A
For a bond issue that sells for less than the bond face amount, the stated interest rate is: A. More than the market rate. B. Less than the market rate. C. The prime rate. D. The actual yield rate.
B
The rate quoted in the bond contract used to calculate the cash payments for interest is called the: A. Face rate. B. Stated rate. C. Market rate. D. Yield rate.
B
When bonds are issued at a premium, what happens to the carrying value and interest expense over the life of the bonds? A. Carrying value decreases and interest expense increases. B. Carrying value and interest expense decrease. C. Carrying value and interest expense increase. D. Carrying value increases and interest expense decreases.
B
For a bond issue that sells for more than the bond face amount, the stated interest rate is: A. The prime rate. B. The actual yield rate. C. More than the market rate. D. Less than the market rate.
C
When bonds are issued at a discount, what happens to the carrying value and interest expense over the life of the bonds? A. Carrying value increases and interest expense decreases. B. Carrying value decreases and interest expense increases. C. Carrying value and interest expense increase. D. Carrying value and interest expense decrease.
C
Which of the following is true for bonds issued at a discount? A. The stated interest rate and the market interest rate are unrelated. B. The stated interest rate is greater than the market interest rate. C. The market interest rate is greater than the stated interest rate. D. The stated interest rate and the market interest rate are equal.
C
A bond is a formal debt instrument that obligates the borrower to repay a stated amount at the maturity date. This stated amount is referred to as the: A. Note. B. Interest. C. Lease. D. Principal or face amount.
D
Which of the following is true for bonds issued at a premium? A. The stated interest rate and the market interest rate are equal. B. The stated interest rate and the market interest rate are unrelated. C. The stated interest rate is less than the market interest rate. D. The market interest rate is less than the stated interest rate.
D
True or False: A premium occurs when the issue price of a bond is above its face amount.
True
True or False: Bonds issued below face amount are said to be issued at a discount.
True
True or False: The stated interest rate is the rate quoted in the bond contract used to calculate the cash payments for interest.
True
