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Accounting

27th Edition
WARREN + 5 others
ISBN: 9781337272094

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BuyFindarrow_forward

Accounting

27th Edition
WARREN + 5 others
ISBN: 9781337272094
Textbook Problem

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

To determine

Bonds: Bonds are long-term promissory notes that are represented by a company while borrowing money from investors to raise fund for financing the operations.

Stated interest rate: It refers to the interest rate that is stated on the face of the bonds.

Market interest rate: It refers to the interest rate that the lenders expect, or demands from the borrower to part with their money as loan to them.

To identify: The issue price of bonds

Explanation

The issue price of bonds would be more than face amount.

If the stated interest rate of a bond is more than the market interest rate, then the bonds is issued at premium...

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