If a Company Sells Its Bonds at Face Value, the Effective

question 35

Multiple Choice

If a company sells its bonds at face value, the effective interest rate is

• A) lower than the nominal rate.
• B) higher than the nominal rate.
• C) equal to the contract rate.
• D) equal to the warrant rate.

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Definitions:

Investment Account

A financial account held at a financial institution that contains securities, cash, and other assets managed for the purpose of investment.

Operating Income

Earnings before interest and taxes (EBIT), a measure of a company's profit from operations before interest expenses and taxes have been deducted.

Paid-In Capital

The amount of capital "paid in" by investors during common or preferred stock issuances, including the par value of the shares and amounts over par value.

Gain Or Loss

The financial result that occurs when the selling price of an asset differs from its original purchase price or adjusted basis.