A Bond Is Issued for Less Than Its Face Value

question 124

Multiple Choice

A bond is issued for less than its face value.Which of the following statements most likely would explain why?

• A)The bond's contract rate is lower than the market rate at the time of the issue.
• B)The bond's contract rate is the same as the market rate at the time of the issue.
• C)The bond's contract rate is higher than the market rate at the time of the issue.
• D)The bond is not secured by specific assets of the corporation.

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Definitions:

Guarantee

A formal promise or assurance, typically in writing, that certain conditions will be fulfilled or a product will meet a specified standard of quality.

Indemnity

A legal agreement to compensate for any losses or damages incurred by another party.

Statute of Frauds

A legal principle that certain types of contracts must be in writing and signed by the party to be charged, in order to be enforceable.

Legal Person

An entity, such as a corporation, recognized by law as having rights and obligations.