1. Listed below are five terms followed by a list of phrases that describe or characterize the

terms. Match each phrase with the best term placing the number designating

1. Stated interest rate

The true interest rate used by investors to value a

bond.

2. Bonds issued at a

discount

The stated interest rate is more than the market

interest rate.

3. Market interest

rate

The stated interest rate equals the market interest

rate.

4. Bonds issued at

face value

The stated interest rate is less than the market interest

rate.

5. Bonds issued at a

premium

The rate quoted in the bond contract used to calculate

the cash payments for interest.

2. On January 1, 2012, Water Wonderland issues $20 million of 8% bonds, due in ten years, with

interest payable semiannually on June 30 and December 31 each year.

1. If the market rate is 7%, will the bonds issue at face amount, a discount, or a premium?

Calculate the issue price.

2. If the market rate is 8%, will the bonds issue at face amount, a discount, or a premium?

Calculate the issue price.

3. If the market rate is 9%, will the bonds issue at face amount, a discount, or a premium?

Calculate the issue price.

3. On January 1, 2012, Julee Enterprises borrows $30,000 to purchase a new Toyota Highlander

by agreeing to a 6%, 4-year note with the bank. Payments of $704.55 are due at the end of each

month with the first installment due on January 31, 2012. Record the issuance of the note

payable and the first two monthly payments.