14 Interactive Quiz A

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Interactive Quiz A http://highered.mcgraw-hill.com/sites/0072996536/student_view0/chapter14/interactive_quiz_a.html[6/22/2010 6:55:17 PM] Interactive Quiz A (See related pages) Results Reporter Out of 25 questions, you answered 6 correctly with a final grade of 24% 6 correct (24%) 19 incorrect (76%) 0 unanswered (0%) Your Results: The correct answer for each question is indicated by a . 1 CORRECT Jason Corporation has issued 500 $1,000 12% bonds payable. Due to the market interest rate, the company is able to issue these bonds at a price of 104.25 per bond. How much did the company collect in cash when these bonds were issued? A) $500,000 B) $52,125 C) $521,250 D) $505,000 E) None of the above Feedback: The figure 104.25 is the business shorthand used to communicate the market price of bonds. To find the full amount of cash collected you take $104.25 times 10 times 500 bonds issued to get $521,250. A1 2 INCORRECT A company has been authorized to issue 1,000, 12%, $500 bonds which mature in 8 years. The issue date is January 1, 2005 and the maturity date is January 1, 2012. The bonds are issued at par. What is the annual interest expense that the company incurs and what is the book value of the bonds on January 1, 2009 after the bonds have been outstanding for four years? A) $30,000 and $100,000 B) $60,000 and $500,000 C) $60,000 and $250,000 D) $30,000 and $500,000 E) None of the above Feedback: The annual interest expense is (12% times $500 par value times 1,000 bonds) or $60,000 and the book value of the bonds is equal to their total par value of $500,000 and is always the same number because the bonds were issued at par value. P1 3 INCORRECT Which conditions in the bond market will cause the bonds to be issued at a premium? A) When the market rate of interest is equal to the bond's stated rate of interest B) When the market rate of interest is equal to the bond's nominal rate of interest C) When the market rate of interest is lower than the contract rate of interest. D) When the market rate of interest is higher than the contract rate of interest. E) None of the above. Feedback: The terms stated rate, par, nominal rate, coupon rate, and contract rate are all synonymous terms which stand for the amount of interest printed on the bond certificate. If the market rate of interest is lower than the rate of interest printed on the bond certificate the bond will sell at a premium because investor's desire the higher rate of interest printed on the bonds. P1 4 INCORRECT When bonds are issued at a discount, the recorded amount of bond interest expense for a given time period bears what relationship to the amount of bond interest payable for the same time period? A)
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14 Interactive Quiz A - Interactive Quiz A Home >...

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