Response to the following questions:
1. A corporation issues $10,000,000 of 6% bonds to yield interest at the rate of 5%.
(a) Was the amount of cash received from the sale of the bonds greater or less than $10,000,000?
(b) Identify the following terms related to the bond issue:
(1) face amount,
(2) market or effective rate of interest,
(3) contract rate of interest, and
(4) maturity amount.
2. If bonds issued by a corporation are sold at a premium, is the market rate of interest greater or less than the contract rate?