Seaside issues a bond with a stated interest rate of 10%, face value of $50,000, and due in 5 years. Interest payments are made semi-annually. The market rate for this type of bond is 8%. What is the issue price of the bond (rounded to nearest whole dollar)?
A) $83,920.
B) $46,320.
C) $54,055.
D) $50,000.
Answer: C
A $500,000 bond issue sold for $510,000. Therefore, the bonds:
A) Sold at a premium because the stated interest rate was higher than the market rate.
B) Sold for the $500,000 face amount plus $10,000 of accrued interest.
C) Sold at a discount because the stated interest rate was higher than the market rate.
D) Sold at a premium because the market interest rate was higher than the stated rate.
Answer: A
A $500,000 bond issue sold for $490,000. Therefore, the bonds:
A) Sold at a discount because the stated interest rate was higher than the market rate.
B) Sold for the $500,000 face amount less $10,000 of accrued interest.
C) Sold at a premium because the stated interest rate was higher than the market rate.
D) Sold at a discount because the market interest rate was higher than the stated rate.
Answer: D
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