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Category > Accounting Posted 01 Apr 2018 My Price 7.00

CJ Company

Bond Premiums and Discounts

Bond discounts and bond premiums may arise at the time of sale.

 

Consider the following: CJ Company sells $500,000 of 10-year bonds on January 1. The bonds pay semiannual interest with a contract rate of 6%. At the same date the effective interest rate is 9%. Which of the following statements is correct?

a.The yield will be the same as the contract rate because CJ Company will receive $500,000, will pay 6% interest, and will re-pay $500,000 at maturity.

b.The yield will be greater than the contract rate because CJ Company will receive less than $500,000, will pay 6% interest, and will re-pay the full $500,000 at maturity.

c.The yield will be less than the contract rate because CJ Company will receive more than $500,000, will pay 6% interest, and will only re-pay $500,000 at maturity.

d.The yield will be greater than the contract rate because CJ Company will receive less than $500,000, will pay 9% interest, and will re-pay the full $500,000 at maturity.

Answers

Maurice Tutor
(5)
Status NEW Posted 01 Apr 2018 06:04 PM My Price 7.00

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