Table of contents

1. Introduction to Accounting1h 21m
2. Transaction Analysis1h 13m
3. Accrual Accounting Concepts2h 38m
4. Merchandising Operations2h 30m
5. Inventory1h 55m
6. Internal Controls and Reporting Cash1h 16m
7. Receivables and Investments3h 8m
8. Long Lived Assets5h 1m
9. Current Liabilities2h 19m
10. Time Value of Money1h 23m
- Time Value of Money Equations
  35m
- Using Time Value of Money Tables
  47m
11. Long Term Liabilities2h 45m
12. Stockholders' Equity2h 15m
13. Statement of Cash Flows2h 24m
14. Financial Statement Analysis5h 25m
15. GAAP vs IFRS56m

11. Long Term Liabilities

Introduction to Bonds and Bond Characteristics

Financial Accounting

11. Long Term Liabilities

Introduction to Bonds and Bond Characteristics

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Multiple Choice

If bonds are issued at a discount, it means that the:

bonds will not pay any interest to investors

bonds are sold for less than their face value

bonds are sold for more than their face value

coupon rate is higher than the market interest rate

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Verified step by step guidance

Understand the concept of bonds issued at a discount: Bonds are issued at a discount when their selling price is less than their face value. This typically happens when the coupon rate (interest rate stated on the bond) is lower than the prevailing market interest rate.

Analyze the relationship between the coupon rate and the market interest rate: If the coupon rate is lower than the market interest rate, investors will demand a lower price for the bond to compensate for the lower interest payments they will receive.

Recognize the implications of issuing bonds at a discount: The issuing company receives less cash upfront than the bond's face value, but it is obligated to repay the full face value at maturity. This creates a difference that is amortized over the life of the bond.

Review the options provided in the problem: Eliminate incorrect choices such as 'bonds will not pay any interest to investors' (bonds at a discount still pay interest) and 'bonds are sold for more than their face value' (this describes bonds issued at a premium).

Select the correct answer: Based on the explanation, the correct answer is 'bonds are sold for less than their face value,' as this aligns with the definition of bonds issued at a discount.