Final answer:
Long-term liabilities are obligations that last over one year. When interest rates increase, the value of existing bonds with lower rates usually decreases. Hence, a $10,000 bond at 6% will be worth less than its face value if market rates are at 9%.
Step-by-step explanation:
Long-term liabilities represent obligations of the firm lasting over b. 1 year. This involves debts or obligations that are due beyond a year's time or beyond the company's operating cycle if it's longer than a year. Examples include bonds payable, long-term loans, and pension obligations.
Now, considering the bond issued by the local water company, it is important to understand bond valuation and interest rates. When interest rates rise, the prices of existing bonds typically fall. This is because new bonds are likely to be issued at the higher current interest rate, making the older bonds with lower interest rates less attractive.
If you are considering buying a $10,000 ten-year bond at an interest rate of 6% one year before maturity and the market interest rates are now 9%, the bond's price will be less than its face value. Investors would prefer the new bonds at the higher interest rate unless they can purchase the existing bond at a discount that compensates for the lower interest rate it offers.