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

Under which market condition would a company typically sell bonds at a discount from par value?

When the market interest rate is lower than the bond's coupon rate

When the market interest rate is higher than the bond's coupon rate

When the bond has a very short maturity period

When the bond is secured by collateral

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Verified step by step guidance

Understand the concept of bond pricing: Bonds are typically sold at par, premium, or discount based on the relationship between the bond's coupon rate and the prevailing market interest rate.

Define the coupon rate: The coupon rate is the annual interest rate paid by the bond issuer to the bondholder, expressed as a percentage of the bond's face value.

Compare the market interest rate to the bond's coupon rate: If the market interest rate is higher than the bond's coupon rate, the bond becomes less attractive because it offers a lower return compared to other investments in the market.

Explain the discount mechanism: To compensate for the lower coupon rate, the bond is sold at a discount (below its par value) so that the effective yield matches the market interest rate.

Conclude the market condition: A company typically sells bonds at a discount when the market interest rate is higher than the bond's coupon rate, as this aligns the bond's yield with market expectations.