If Bonds Are Issued at a Discount, It Means That

question 88

Multiple Choice

If bonds are issued at a discount, it means that the

• A)financial strength of the issuer is suspect.
• B)market interest rate is higher than the contractual interest rate.
• C)market interest rate is lower than the contractual interest rate.
• D)bondholder will receive effectively less interest than the contractual interest rate.

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Definitions:

Weighted Average Cost

A method of calculating the total cost of goods sold or assets that weighs each item's cost proportionately.

Face Value

The original value or principal amount of a security as stated by the issuer.

Weighted Average Cost

A method of calculating the average cost of inventory or cost of goods sold by weighting each item by its relevance or quantity.

Cost of Equity

The yield a business seeks to determine whether an investment fulfills its requirements for capital returns, frequently calculated through methods such as the Capital Asset Pricing Model (CAPM).