Read each statement below, indicate if it is true or false, and give a brief explanation of your answer.

When a bond is issued at a discount, the semiannual amount of interest expense will be greater than the cash

True

payment for interest.

A$.$ because when a bond is issued at a discount, the market rate is lower than the contract $($stated$)$ rate.

B$.$ when a bond is issued at a discount, the semiannual amount of interest expense equals the cash payment for interest.

C$.$ because interest expense includes both cash interest and amortization of the discount.

D$.$ when a bond is issued at a discount, the cash payment for interest will be greater than the semiannual amount of interest expense.

When a bond is sold at a discount, the maturity value is less than the present value of the principal and interest payments, based on the market rate of interest on the date of issue.

False

A$.$ the maturity value is greater than the present value of future cash flows, which is why the bond was issued at a discount.

B$.$ the maturity value is less than the present value of the principal and interest payments, based on the contract $($stated$)$ rate.

C$.$ the market rate of interest is lower than the contract $($stated$)$ rate.

D$.$ the market rate of interest is higher than the contract $($stated$)$ rate.

When a bond is issued at a discount, the semiannual cash interest payments are calculated using the market

False

interest rate on the date of issue.

A$.$ because the bond is issued at a discount.

B$.$ the contract $($stated$)$ rate, not the market rate, is always used to calculate the cash interest payment.

C$.$ the market rate is only used to calculate cash interest payment when a bond is issued at a premium.

D$.$ the contract $($stated$)$ rate is used to calculate the present value of the future cash flows from the bond.