A Bond Has a $1,000 Par Value, Makes Annual Interest

question 49

True/False

A bond has a $1,000 par value, makes annual interest payments of $100, has 5 years to maturity, cannot be called, and is not expected to default.The bond should sell at a premium if interest rates are below 10% and at a discount if interest rates are greater than 10%.

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Definitions:

Modified AGI

Adjusted Gross Income with certain deductions and exclusions added back in, used to determine eligibility for certain tax benefits.

Adjusted Gross Income

An individual's total gross income minus specific deductions allowed by the IRS, used to determine tax liability.

Deduction

An expense that can be subtracted from gross income to reduce the taxable income.

Imputed Interest Rules

Regulations set by the IRS to assign a reasonable interest rate to financial transactions that do not state their own interest or whose interest is deemed insufficient.