Will a bond sell at a discount or at a premium if the stated rate is greater than the market rate on the bond? If the stated rate is less than the market rate?View Solution: Will a bond sell at a discount or at a

Will a bond sell at a discount or at a premium if the stated rate is greater than the market rate on the bond? If the stated rate is less than the market rate?View Solution: Will a bond sell at a discount or at a

Principles of Accounting Volume 1

19th Edition

ISBN:9781947172685

Author:OpenStax

Publisher:OpenStax

Chapter13: Long-term Liabilities

Section: Chapter Questions

Problem 11MC: When a bond sells at a discount, the carrying value ________ after each amortization entry. A....

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When a bond sells at a discount, the carrying value ________ after each amortization entry. A. increases B. decreases C. stays the same D. cannot be determined
The market rate of interest for a bond issue that sells for more than its face value is a. Equal to the rate stated on the bond. b. Higher than the rate stated on the bond. c. Not dependent on the rate of the bond. d. Lower than the rate stated on the bond.
For a bond issue that sells for less than its face value, the market rate of interest is a. Higher than the rate stated on the bond. b. Dependent on the rate stated on the bond. c. Equal to the rate stated on the bond. d. Less than the rate stated on the bond.
What is the difference between face rate and market rate, and which rate would be higher if a bond is issued at a discount?
if the market rate of interest is lower than the stated rate, bonds will sell at an amount ?
i. How would you expect the price of the callable bond to compare to that of the non-callable bond? Give an explanation for your answer, using a maximum of two sentences ii. If interest rates were to rise dramatically, how would you expect this to impact the price differences between the two bonds; increase, decrease or stay constant? Justify your response in a single sentence iii. Explain the advantage of issuing a callable bond compared to a non-callable?