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If the market rate of interest is greater than the contractual rate of interest, bonds will sell a. at a discount b. only after the stated rate of interest is increased c. at a premium d. at face value

Which of the following statements relating to bonds is incorrect? A. A bond’s face value is the amount the issuer must pay to the bondholder at maturity. B. The owner of a registered bond is the person to whom interest payments are mailed. C. A bond will typically sell at a discount when its nominal rate is less than the current market rate of interest. D. A bond is a debt instrument giving the issuer flexibility as to maturity date.

1. To calculate a gain or loss on redemption of a bond, you compare a. The market interest rate to the contract rate b. The carrying value value of the bond to the proceeds received from the sale of the bond c. The income for the period d. The proceeds to the unamortized premium or discount   2. If the proceeds are greater than the carrying value, you will have a a. gain with a credit balance b. gain with a debit balance c. loss with a debit balance d. loss with a credit balance

If bonds are issued at a discount, it means that the   a. bondholder will receive effectively less interest than the contractual rate of interest   b. market interest rate is lower than the contractual interest rate   c. financial strength of the issuer is suspect   d. market interest rate is higher than the contractual interest rate

When bonds are retired at​ maturity, ________. A. the carrying value always equals the face value   B. the carrying value equals the face value plus the unamortized premium or less the unamortized discount   C. the bondholders are paid the face value plus the unamortized premium or less the unamortized discount   D. the entry to retire the bonds may include a gain or loss on retirement of bonds

(Bond Theory: Amortization and Gain or Loss Recognition)Part I: The appropriate method of amortizing a premium or discount on issuance of bonds is the effective-interest method.Instructions(a) What is the effective-interest method of amortization and how is it different from and similar to the straight-line method of amortization?(b) How is amortization computed using the effective-interest method, and why and how do amounts obtained using the effective-interest method differ from amounts computed under the straight-line method?Part II: Gains or losses from the early extinguishment of debt that is refunded can theoretically be accounted for in three ways:1. Amortized over remaining life of old debt.2. Amortized over the life of the new debt issue.3. Recognized in the period of extinguishment.Instructions(a) Develop supporting arguments for each of the three theoretical methods of accounting for gains and losses from the early extinguishment of debt.(b) Which of the methods above is…

1. Should financial institutions invest in junk bonds? 2. Explain the use of call provisions on bonds. How can a call provision affect the price of the bond?3. What are protective covenants? Are they needed? Explain why.

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Explain the use of a sinking-fund provision. How can it reduce the investor’s risk?  What are protective covenants? Why are they needed? Explain the use of call provisions on bonds. How can a call provision affect the price of a bond? Explain the use of bond collateral, and identify the common types of collateral for bonds. What are debentures? How do they differ from subordinated debentures?  What is a bond indenture? What is the function of a trustee with respect to the bond indenture? What are the advantages and disadvantages to a firm that issues low- or zero-coupon bonds?

Are the over-collateralizationa requirements for mortgage pay-through bonds the same as for mortgage-backed bonds?