On January 1,2011,Alpha Company issued $1,000,000 of 5%,20-year bonds to buy a new computerized accounting system.The market rate of interest was 6%.The bonds pay interest annually on December 31.These bonds sold at a _____ because the market rate of interest is _____ than the stated interest rate.

Question

Quizplus · Accepted Answer

The bonds sold at a discount because the market rate of interest (6%) is higher than the stated interest rate (5%). When the market rate of interest is higher than the stated interest rate, investors are not willing to pay face value for the bonds and instead demand a discount.

On January 1,2011,Alpha Company Issued $1,000,000 of 5%,20-Year Bonds to Buy