Woodsman Company issued $400,000 of 6-year, 6% bonds with interest payments occurring annually at the end of each year. What additional information is needed in order to determine the selling price of these bonds?

Question

Quizplus · Accepted Answer

The selling price of bonds is determined by the market rate of interest, which is the rate investors require on similar investments. Therefore, it is necessary to know the market rate of interest in order to determine the selling price of the bonds. The face amount of the bonds (A) and the stated rate of interest (D) are important pieces of information, but they alone do not determine the selling price. The bond covenants (B) are contractual agreements between the issuer and the bondholders and do not directly affect the selling price.

Woodsman Company Issued $400,000 of 6-Year, 6% Bonds with Interest