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

Which type of bond is certain to provide a capital loss if held to maturity?

A bond purchased at par

A zero-coupon bond purchased at face value

A bond purchased at a premium

A bond purchased at a discount

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Verified step by step guidance

Understand the concept of bond pricing: Bonds can be purchased at par (face value), at a discount (below face value), or at a premium (above face value). The price at which a bond is purchased affects its yield and potential capital gain or loss when held to maturity.

Recognize that a bond purchased at a premium is priced higher than its face value. This occurs when the bond's coupon rate is higher than the prevailing market interest rate, making it more attractive to investors.

Learn that when a bond is held to maturity, the bondholder receives the face value of the bond, regardless of the price paid for it. If the bond was purchased at a premium, the face value received at maturity will be less than the purchase price, resulting in a capital loss.

Compare this scenario to bonds purchased at par or at a discount: A bond purchased at par will not result in a capital gain or loss at maturity, and a bond purchased at a discount will result in a capital gain at maturity because the face value received exceeds the purchase price.

Conclude that the type of bond certain to provide a capital loss if held to maturity is a bond purchased at a premium, as the face value received at maturity will be less than the premium price paid.