Indicate whether each of the following statements about bonds payable is true or false.________ a) At the time of issue, the effective interest rate of a particular bond is equal to the market rate of interest for bonds with a similar level of risk.________ b) When bonds are sold at 105, the stated interest rate of the bonds is lower than the market rate for investments with a similar level of risk.________ c) When bonds are sold at 95, the stated interest rate of the bonds is lower than the market rate for investments with a similar level of risk.________ d) When bonds are sold at 100, the stated interest rate of the bonds is lower than the market rate for investments with a similar level of risk.________ e) When bonds are sold at 101, the bonds were issued at a premium.
What will be an ideal response?
a) T b) F c) T d) F e) T
a) This is true. Bonds are compared with others of similar risk when establishing the effective rate.
b) This is false. When bonds are sold at 105 (a premium), the stated rate of the bonds is higher than the market rate.
c) This is true. When bonds are sold at 95 (a discount), the stated rate of the bonds is lower than the market rate.
d) This is false. When bonds are sold at 100 (face value) the stated rate of the bonds is equal to the market rate.
e) This is true. Selling bonds at 101 means that the bonds are issued for 101% of their face value, or at a premium.
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