Case Wines Company issues $811,000 of 11%,10-year bonds on March 31,2017.The bonds pay interest on March 31 and September 30.Which of the following statements is true?

Question

Quizplus · Accepted Answer

Since the market rate of interest is 12%, which is higher than the bond's coupon rate of 11%, the bonds will issue at a discount. This is because investors require a higher return to invest in a bond that pays a lower coupon rate than the market rate. The discount will be calculated such that the effective interest rate of the bond is equal to the market rate of 12%.

Case Wines Company Issues $811,000 of 11%,10-Year Bonds on March