The Market Rate of Interest for a Bond Issue Which

question 73

Multiple Choice

The market rate of interest for a bond issue which sells for more than its face value is

• A) independent of the interest rate stated on the bond.
• B) higher than the interest rate stated on the bond.
• C) equal to the interest rate stated on the bond.
• D) less than the interest rate stated on the bond.

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Definitions:

Bond Payable

A long-term liability where a borrower agrees to pay the bondholder the principal plus interest on a specified date.

Straight-Line Method

A method of calculating depreciation of an asset that evenly spreads the cost over its useful life.

Bond Interest Expense

The cost associated with the interest payments on an issuer's bonds payable.

Straight-Line Method

A method of calculating depreciation of an asset that allocates an equal portion of the asset's cost to each year of its useful life.