Question 1. What is the market price of a bond issued at a discount?
a) the present value of the principle amount at the market (effective) rate of interest plus the present value of all future interest payments at the market (effective) rate of interest
b) the present value of its principal amount at the market (effective) rate of interest minus the present value of all future interest payments at the rate of interest stated on the bond
c) the present value of its principle amount at the market (effective) rate of interest minus the present value of all future interest payments at the market (effective) rate of interest
d) the present value of the principal amount at the market (effective) rate of interest plus the present value of all future interest payments at the rate of interest stated on the bond
Question 2. When a bond issue sells for more than its par value, what is the market rate of interest?
a) it is equal to the rate stated on the bond
b) it is dependent on the rate stated on the bond
c) it is less than the rate stated on the bond
d) it is higher than the rate stated on the bond
Question 3. When a company issues bonds, how are unamortized bond discounts and premiums classified on the balance sheet?
a) Bond discounts are classified as expenses, and bond premiums are classified as revenue.
b) Bond premiums are classified as additions to the face value of bonds, and bonds discounts are classified deductions from the face value of bonds
c) Bond discounts are classified as assets, and bond premiums are classified as contra-asset
d) None of the above