Churchill Company planned to raise $100,000 by issuing bonds. The bond certificates were printed bearing an interest rate of 8%, which was equal to the market rate of interest. However, before the bonds could be issued, economic conditions forced the market rate up to 9%. If the life of the bonds is 6 years and interest is paid annually on December 31, how much will Churchill receive from the
sale of the bonds?
a. Exactly $100,000 because Churchill Company would still pay interest at the face rate of 8%.
b. Less than $100,000 because the market rate of interest at 9% was more than the face rate.
c. Greater than $100,000 because the face rate of interest at 8% was less than the market rate.
d. The bonds would not be sold at all; Churchill Company would have the certificates reprinted bearing the market rate of 9%.
b
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