Multiple Choice
A bond with a face amount of $1,000 has a current price quote of 98.5. What is the bond's price?
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11. Long Term Liabilities
Introduction to Bonds and Bond Characteristics
Struggling with Financial Accounting?
Join thousands of students who trust us to help them ace their exams!Watch the first videoMultiple Choice
Which of the following statements about bonds is correct?
A
Bonds are debt instruments that obligate the issuer to pay interest and repay principal at maturity.
B
Interest payments on bonds are optional for the issuer.
C
The maturity value of a bond is always less than its face value.
D
Bonds represent ownership in a corporation.
Verified step by step guidance1
Understand the definition of bonds: Bonds are debt instruments issued by entities (such as corporations or governments) to raise funds. They obligate the issuer to pay periodic interest (coupon payments) and repay the principal amount (face value) at maturity.
Clarify the nature of interest payments: Interest payments on bonds are not optional for the issuer. They are a contractual obligation unless the issuer defaults.
Examine the maturity value of bonds: The maturity value of a bond is typically equal to its face value, unless the bond is a zero-coupon bond or has specific terms that alter this value.
Distinguish bonds from equity: Bonds do not represent ownership in a corporation. Instead, they represent a creditor relationship, unlike stocks which signify ownership.
Evaluate the given statements: Compare each statement to the clarified concepts above to determine which one accurately describes bonds.
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