A $45,000 Bond Issue with a Stated Interest Rate of 10

question 47

Multiple Choice

A $45,000 bond issue with a stated interest rate of 10%, when the market rate of interest is 7%, means that the bond will sell for:

• A)$45,000.
• B)more than $45,000.
• C)$31,500.
• D)less than $45,000.

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Definitions:

Fixed Costs

Costs that do not vary with the level of output or sales, such as rent, salaries, and insurance premiums.

Internal Rate of Return

The discount rate that makes the net present value (NPV) of all cash flows from a particular project equal to zero, used to evaluate the profitability of potential investments.

Accounting Basis

Refers to the method of recording accounting transactions; either on a cash basis or on an accrual basis.

Required Return

The minimum return an investor anticipates or requires from an investment to make it worthwhile.