Texas Foods has a 6 percent bond issue outstanding that pays $30 in interest every March and September.The bonds are investment grade and sell at par.The bonds are callable at a price equal to the present value of all future interest and principal payments discounted at a rate equal to the comparable Treasury rate plus 0.50 percent.Which of the following correctly describe the features of this bond?
I.bond rating of B
II."make whole" call price
III.$1,000 face value
IV.offer price of $1,000

Question

Quizplus · Accepted Answer

The bond is described as investment grade, which contradicts a rating of B (choice I), typically considered below investment grade. The call price is based on the present value of future cash flows discounted at a specific rate (choice II), indicating a "make whole" call provision. The bond pays $30 in interest semi-annually, which suggests a $1,000 face value assuming a 6 percent annual interest rate (choice III). It sells at par, meaning the offer price is equal to its face value of $1,000 (choice IV).

Texas Foods Has a 6 Percent Bond Issue Outstanding That