If Bonds Are Issued at a Discount, It Means That

question 110

Multiple Choice

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

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

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Definitions:

Contribution Margin Ratio

The ratio of sales income that surpasses variable expenses, showing the extent to which revenue assists in covering fixed costs and generating profit.

Net Income

The total profit of a company after all expenses and taxes have been deducted from revenue.

Operating Leverage

The degree to which a company can increase its profits by increasing sales, reflecting how fixed costs are leveraged against sales volume.

Fixed Expenses

Costs that do not vary with the level of production or sales over a short period, such as rent or salaries.