A Company Releases a Five-Year Bond with a Face Value

question 61

Multiple Choice

A company releases a five-year bond with a face value of $1000 and coupons paid semiannually. If market interest rates imply a YTM of 6%, which of the following coupon rates will cause the bond to be issued at a premium?

• A) 8%
• B) 6%
• C) 3%
• D) 4%

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Definitions:

Vouchers Payable

An accounting term that represents the obligation of a business to pay for goods or services that have been received, but not yet paid for.

Purchases Discount

A contra-cost account in the general ledger that records discounts offered by vendors of merchandise for prompt payment of purchases by buyers.

Merchandise

Goods brought into a store for resale to customers.

Purchase Discounts

Reductions in price given by a supplier to a buyer for early payment within a specified period.