A bond will issue at a premium when:

• the market rate of interest is more than the stated rate of interest.
• the market rate of interest is less than the stated rate of interest.
• the market rate of interest is equal to the stated rate of interest.

Robinson, Inc., issues 6%, 10-year bonds with a face amount of $1 million on January 1, Year 1, for $1,077,946, when the market rate of interest is 5%. Interest expense associated with this bond for the first semiannual period is:

• $25,000
• $26,949
• $30,000
• $32,338

Crawford Corporation issues $100,000 of 7% bonds on January 1, Year 1. The bonds have a six-year term and pay interest semiannually on June 30 and December 31 each year. Assuming a market interest rate of 6%, what is interest expense on the bonds on December 31, Year 1?

• $2,408
• $3,139
• $3,500
• $7,000

The carrying value of bonds issued at a discount or at a premium will be different from their face amount at maturity.

True or False

When interest rates go down, bond prices go up.

True or False

Zeta Corporation issues $100,000 of 8% bonds maturing in 10 years on January 1, Year 1, when the market rate of interest is 9%. The bonds were issued at a discount. Market interest rates drop to 7% by December 31, Year 1. The company retires these bonds on December 31, Year 1. How much did it cost the company to retire them?

• $106,595
• $100,000
• $93,496
• $93,920

On January 1, Year 1, a company issues $100,000 of 8% bonds maturing in 10 years when the market rate of interest is 9%. The bonds were issued at a discount. Market interest rates drop to 6% by December 31, Year 2. The company retires these bonds on December 31, Year 2. Which of the following is true?

• The bonds can be retired at their carrying value
• The company will incur a loss
• The company will incur a gain
• No gain or loss will be recorded

The interest rate we use to price a bond issue is the stated rate.

True or False

The price of a bond is equal to the face amount payable at maturity, plus the periodic interest payments.

True or False

The higher the market interest rate compared to the stated rate, the lower the bond issue price will be.

True or False

On January 1, Year 1, Biddeford Company issues $100,000 of 6% bonds maturing in 10 years when the market rate of interest is 8%. Interest is paid semiannually on June 30 and December 31. When using a financial calculator to compute the issue price of the bonds, the applicable number of periods ("N") is:

• 5
• 10
• 20
• 40

On January 1, Year 1, Greenfield, Inc. issues $100,000 of 9% bonds maturing in 10 years when the market rate of interest is 8%. Interest is paid semiannually on June 30 and December 31. When using a financial calculator to compute the issue price of the bonds, the applicable periodic interest rate ("I") is:

• 4.0%
• 4.5%
• 8.0%
• 9.0%