Question

Bond prices depend on the market rate of​ interest, stated rate of​ interest, and time. Determine whether the following bonds payable will be issued at face​ value, at a​ premium, or at a​ discount:a.The market interest rate is​ 8%. Idaho issues bonds payable with a stated rate of​ 7.75%.b.Austin issued​ 9% bonds payable when the market interest rate was​ 8.25%.c.​Cleveland's Cars issued​ 10% bonds when the market interest rate was​ 10%.d.​Atlanta's Tourism issued bonds payable that pay the stated interest rate of​ 8.5%. At​ issuance, the market interest rate was​ 10.25%.

Answer 1

Determine whether the following bonds payable will be issued at face​ value, at a​ premium, or at a​ discount:

a.The market interest rate is​ 8%. Idaho issues bonds payable with a stated rate of​ 7.75%.

• Bonds issued at discount because market rate is higher than the bond's coupon rate.

b.Austin issued​ 9% bonds payable when the market interest rate was​ 8.25%.

• Bonds issued at premium because market rate is lower than the bond's coupon rate.

c.​Cleveland's Cars issued​ 10% bonds when the market interest rate was​ 10%.

• Bonds issued at par because bond's coupon rate is equal to the market rate.

d.​Atlanta's Tourism issued bonds payable that pay the stated interest rate of​ 8.5%. At​ issuance, the market interest rate was​ 10.25%.

• Bonds issued at discount because market rate is higher than the bond's coupon rate.