Ordinarily, the proceeds from the sale of a bond issue will be equal to:
A) The face amount of the bond.
B) The total of the face amount plus all interest payments.
C) The present value of the face amount plus the present value of the stream of interest payments.
D) The face amount of the bond plus the present value of the stream of interest payments.

Question

Quizplus · Accepted Answer

The proceeds from the sale of a bond issue represent the present value of future cash flows (the face amount and the stream of interest payments). Therefore, the best choice is C, which represents the present value of both the face amount and the stream of interest payments. A, B, and D are incorrect because they do not take into account the time value of money and the present value of future cash flows.

Ordinarily, the Proceeds from the Sale of a Bond Issue