Bonds: Bonds are debt instruments issued by the borrower company to its lenders. Bonds are issued at a specified rate of interest and for a specified time period. The bondholders get a fixed rate of interest on the bonds and repayment of the bonds at the maturity date. Contract rate: Contract rate is the rate of interest prescribed in the bond indenture that shall be paid to the bondholder periodically. Market rate: Market rate is the rate of interest for the same type of bonds prevailing in the market. There may be a difference between the contract rate and market rate of interest on bonds. Due to the difference, the bonds are issued at premium or discount. To indicate: The method to calculate the price of the bond if Par value, contract rate and market rate is available.

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Chapter 14, Problem 9DQ

To determine

Concept Introduction:

Bonds:

Bonds are debt instruments issued by the borrower company to its lenders. Bonds are issued at a specified rate of interest and for a specified time period. The bondholders get a fixed rate of interest on the bonds and repayment of the bonds at the maturity date.

Contract rate:

Contract rate is the rate of interest prescribed in the bond indenture that shall be paid to the bondholder periodically.

Market rate:

Market rate is the rate of interest for the same type of bonds prevailing in the market. There may be a difference between the contract rate and market rate of interest on bonds. Due to the difference, the bonds are issued at premium or discount.

To indicate:

The method to calculate the price of the bond if Par value, contract rate and market rate is available.

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