Issuing bonds payable when the market rate of interest is less than the stated interest rate:
A) results in bonds being issued at a premium.
B) results in bonds being issued at less than their face value.
C) raises the effective interest rate above the stated rate of interest.
D) results in bonds being issued at a premium and the effective interest rate is higher than the stated rate.

Question

Quizplus · Accepted Answer

Issuing bonds payable when the market rate of interest is less than the stated interest rate results in bonds being issued at a premium. This is because investors are willing to pay more than the face value of the bond in order to receive a higher rate of interest than what is currently available in the market.

Issuing Bonds Payable When the Market Rate of Interest Is