1.
Bonds sold above face value are recorded at a premium.
A) True
B) False
2.
Bonds pay investors a fixed rate of return.
A) True
B) False
3.
The present value of a bond will be above par value when stated rates of interest are less than effective rates.
A) True
B) False
4.
Interest paid to bond holders remains the same regardless of whether bonds sell at a discount or premium.
A) True
B) False
5.
Bonds sell below face value when stated rates of interest are lower than market rates of interest.
A) True
B) False
6.
Principal is returned to bond holders at maturity.
A) True
B) False
7.
Bonds sell at a premium when market rates of interest exceed stated rates.
A) True
B) False
8.
Bonds sell at face value when stated and market rates of interest are the same.
A) True
B) False
9.
The price of a bond is equal to the sum of the present value of its principal and interest payments.
A) True
B) False
10.
Premiums increase the cost of borrowed funds.
A) True
B) False
11.
Zero coupon bonds pay interest to investors semiannually.
A) True
B) False
12.
Zero coupon bonds always sell at at a discount.
A) True
B) False
13.
Straight-line amortization allocates discounts or premiums equally over a bond's maturity period.
A) True
B) False
14.
International Financial Reporting Standards, IFRS, and US GAAP account for bond issue costs differently.
A) True
B) False
15.
When bonds sold at a premium are amortized, their carrying value increases.
A) True
B) False
16.
Convertible bonds can be exchanged for shares of stock.
A) True
B) False
17.
When convertible bonds are sold, US GAAP requires that a portion of the price be accounted for as equity.
A) True
B) False
18.
The price of a covertible bond trading at 103 would be $1,300.
A) True
B) False
19.
When bonds are sold a liability account must always be credited.
A) True
B) False
20.
Bonds with detachable warrants can't sell at a discount.
A) True
B) False
21.
Bonds with detachable warrants give investors the option to buy shares of stock.
A) True
B) False
22.
Like convertible bonds, when bonds with detachable warrants are sold, no equity is recorded.
A) True
B) False
23.
Call features protect bond holders from falling interest rates.
A) True
B) False
24.
When bonds are retired for less than their carrying value a gain is recognized.
A) True
B) False
25.
When bonds sold at a discount are amortized, their carrying value increases.
A) True
B) False
26.
When the present value of a bond is below par, market rates of interest are lower than stated rates.
A) True
B) False
27.
Bond prices are caluclated using market rates to discount interest and principal.
A) True
B) False
28.
Bond interest payments are calculated using stated rates of interest.
A) True
B) False