Question

Marshall Manufacturing issues a $1,000 bond with an interest rate of 10%, and a maturity date of 2031. This creates a liability for Marshall Manufacturing to pay the bondholder: a. an interest payment equal to the dividend payment distributed to the common stockholders. b. $1,100 annually until the year 2031. c. 10% of the selling price of the bond. d. $100 interest per year and $1,000 in the year 2031.

Answer 1

Answer:

The correct option is d. $100 interest per year and $1,000 in the year 2031.

Explanation:

Bond can be described as a financial instrument showing that certain amount of money is being owed to the holder. The bondholder has to be paid periodic interest at a specific rate and bond value has to paid back to the holder at the maturity date.

From the question, we have:

Bond value = $1,000

Interest rate = 10%

Maturity date = 2031

Therefore, we have:

Interest per year = Interest rate * Bond value = 10% * $1,000 = $100 per year

This implies that this creates a liability for Marshall Manufacturing to pay the bondholder $100 interest per year and $1,000 in the year 2031.

Therefore, the correct option is d. $100 interest per year and $1,000 in the year 2031.