Your Company Issues a 5-Year Bond with a Face Value

question 101

Multiple Choice

Your company issues a 5-year bond with a face value of $10,000 and a stated interest rate of 7%.The market interest rate is 5%.The issue price of the bond is calculated as:

• A)the present value of $10,000 to be received in 5 years plus the present value of $700 per year for 5 years.
• B)the face value of the bonds,$10,000.
• C)the amount investors would have to pay to earn 7% interest.
• D)the amount investors would have to pay to earn an average of the stated interest rate and the market interest rate.

---

Definitions:

Stop Payment Order

A stop payment order is a request made to a bank or financial institution to cancel a check or payment before it is processed or cashed.

Holder In Due Course

A party possessing a negotiable instrument, such as a check or promissory note, who has certain rights to payment and is protected against some defenses if the instrument was acquired in good faith.

Authorized Representative

An individual or entity legally empowered to act on behalf of another person or organization.

Legal Entity

A legal entity refers to any company or organization that has legal rights and obligations, including the capacity to enter into contracts and loans, sue and be sued.