Consider the following statements: Statement 1. When amortizing a bond discount, the bond's amortized cost decreases each period as the inte expense increases. Statement 2. When amortizing a bond premium, the bond's amortized cost increases each period as the inte expense increases. Select one: a. Neither of the statements is correct b. Only statement 2 is correct C. Both statements are correct d. Only statement 1 is correct
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- The effective-interest method of bond amortization finds the difference between the ________ times the ________ and the ________ times the ________. A. stated interest rate, principal, stated interest rate, carrying value B. stated interest rate, principal, market interest rate, carrying value C. stated interest rate, carrying value, market interest rate, principal D. market interest rate, carrying value, market interest rate, principal1. To calculate a gain or loss on redemption of a bond, you compare a. The market interest rate to the contract rate b. The carrying value value of the bond to the proceeds received from the sale of the bond c. The income for the period d. The proceeds to the unamortized premium or discount 2. If the proceeds are greater than the carrying value, you will have a a. gain with a credit balance b. gain with a debit balance c. loss with a debit balance d. loss with a credit balanceWhen bonds are retired at maturity, ________. A. the carrying value always equals the face value B. the carrying value equals the face value plus the unamortized premium or less the unamortized discount C. the bondholders are paid the face value plus the unamortized premium or less the unamortized discount D. the entry to retire the bonds may include a gain or loss on retirement of bonds
- If the straight-line method of amortization of bond premium or discount is used, which of the following statements is true? Group of answer choices Total interest expense will increase over the life of the bonds with the amortization of bond discount. Total interest expense will increase over the life of the bonds with the amortization of bond premium. Total interest expense will decrease over the life of the bonds with the amortization of bond discount. Total interest expense will remain the same over the life of the bonds with the amortization of bond discount.Which of the follwing statement is correct. As the credit risk of a bond increases: A. The YTM falls and price of the bond falls B. The YTM increases and price of the bond falls C. The YTM falls and price of the bond rises D. The YTM increases and price of the bond risesThe market price of a bond issued at a discount is the present value of its principal amount at the market (effective) rate of interest a. Less the present value of all future interest payments at the rate of interest stated on the bond. b. Plus the present value of all future interest payments at the rate of interest stated on the bond. c. Plus the present value of all future interest payments at the market (effective) rate of interest. d. Less the present value of all future interest payments at the market (effective) rate of interest.
- When the effective-interest method is used, the amount of bond discount amortized eachinterest period is equal to thea. amount of interest expense less the cash paid for interest.b. amount of interest expense plus the cash paid for interest.c. face value of the bond times the market interest rate at the date of issue.d. face value of the bond times the stated interest rate.Refer to Chapter 10, page 567: Stated rate of interest versus the market rate of interest Required Indicate whether a bond will sell at a premium (P), discount (D), or face value (F) for each of the following conditions: ____ The stated rate of interest is higher than the market rate. ____ The market rate of interest is equal to the stated rate. ____ The market rate of interest is less than the stated rate. ____ The stated rate of interest is less than the market rate. ____ The market rate of interest is higher than the stated rateFrom page 9-4 of the VLN, what causes the bond liability for a bond issued at a premium to decrease each interest payment period? Group of answer choices A. Paying the interest. B. The amortization of the premium. C. Paying the principal. D. The bond liability does not decrease when a bond is issued at a premium.
- Which of the following statements is not correct? a) The export value of the bond; the value the investor pays when buying bonds b) Nominal value of the bond; is the value written on the bond c) Another reason for the difference in bond market prices is the dividend paid to bonds. d) Periodic interest amounts on bonds are calculated at nominal value. e) Market value of a bond is equal to the present value of the interest to be paid by the bond and the principal amount to be paid at the end of maturity. ------------------ What is the market value of İdil Gıda's bond with a nominal value of 15000 USD, maturity of 3 years and 30% annual interest payment, assuming that the desired yield rate is 36%? a) 12500b) 13494c) 9000d) 5456e) 7594 ============ What is the market value of Beril Gıda A.Ş.'s bond with a nominal value of USD 12,000, maturity of 5 years and an annual interest payment of 25%, when the desired rate of return is 25%? a) 18000b) 15000c) 12000d) 16000e)…Which of the following statements is false? A. Other things being equal, an increase in a bond’s maturity will increase its interest rate risk. B. Other things being equal, an increase in the coupon rate of a bond will decrease its interest rate risk. C. Other things being equal, an increase in a bond’s YTM will decrease its interest rate risk. D. Effective duration is calculated as Macaulay duration divided by one plus the bond’s yield to maturity.When a bond sells at a discount, the carrying value ________ after each amortization entry.A. increasesB. decreasesC. stays the sameD. cannot be determined
