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Handout to review material covering Bonds (10 points)

 

1.         Why would bonds ever sell at a premium?     a.  Stated Rate = Market Rate

                                                                        

           

b.  Stated Rate > Market Rate

                                                                                    c.  Stated Rate < Market Rate

   

2.         Why would bonds ever sell at a discount?     a.  Stated Rate = Market Rate

                                                                                    b.  Stated Rate > Market Rate

                                                                                    c.  Stated Rate < Market Rate    

3.         At what amount do bonds sell for if the Stated Rate is equal to the Market Rate?

                                                                                    a. Bonds sell at a Discount

                                                                                    b. Bonds sell at Face Value

                                                                                    c. Bonds sell at a Premium

   

4.         $500,000, 10%, 20 year bonds sell at 102.

            These bonds are selling at a                            a.  Discount                 b. Premium

   

            Give the amount of cash received for these bonds when sold.          ____________

   

5.         On the day the bonds were dated, Willow Corp. issued 12% bonds having a face                                     value of $100,000 for $95,233.

 

            a.  What entry is required to record the sale of the bonds?

   

            __________________________________________________

                          __________________________________________________    

            b.  What amount of interest would be paid to bondholders annually?  ____________

   

            c.  What amount of interest would be paid to bondholders semi-annually? ____________

       

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