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Leona [35]
3 years ago
9

In each of the following situations, state whether the bonds will sell at a premium or discount. Required a. Valley issued $300,

000 of bonds with a stated interest rate of 7 percent. At the time of issue, the market rate of interest for similar investments was 6 percent. Premium Discount b. Spring issued $220,000 of bonds with a stated interest rate of 5 percent. At the time of issue, the market rate of interest for similar investments was 6 percent. Discount Premium c. River Inc. issued $150,000 of callable bonds with a stated interest rate of 5 percent. The bonds were callable at 102. At the date of issue, the market rate of interest was 6 percent for similar investments. Discount Premium
Business
1 answer:
IrinaK [193]3 years ago
3 0

Answer:

a. Premium

b. Discount

c. Discount

Explanation:

a. Valley issued $300,000 of bonds with a stated interest rate of 7 percent. At the time of issue, the market rate of interest for similar investments was 6 percent.

Premium (discount) = Bond's stated interest rate - Market rate of interest for similar investments = 7% - 6% = 1% premium

Therefore, Valley's bond will sell at a premium.

b. Spring issued $220,000 of bonds with a stated interest rate of 5 percent. At the time of issue, the market rate of interest for similar investments was 6 percent.

Premium (discount) = Bond's stated interest rate - Market rate of interest for similar investments = 5% - 6% = -1% discount

Therefore, Spring's bond will sell at a discount.

c. River Inc. issued $150,000 of callable bonds with a stated interest rate of 5 percent. The bonds were callable at 102. At the date of issue, the market rate of interest was 6 percent for similar investments.

Premium (discount) = Bond's stated interest rate - Market rate of interest for similar investments = 5% - 6% = -1% discount

Therefore, River Inc.'s bond will sell at a discount.

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Part a.

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