Somerville Company issued $200,000 bonds to finance the company\'s expansion. Th
ID: 2460803 • Letter: S
Question
Somerville Company issued $200,000 bonds to finance the company's expansion. The bonds have a contract interest rate of 9%, will pay interest semi-annually on June 30 and December 31, and mature in five years. On the day the bonds were issued, the market rate of interest was 10%. Somerville's bond contract includes the provision that Somerville may buy back the bonds from the bondholders beginning two years from the date of the bond issue at a price of $204,000.
The stated rate of interest on the bonds is _____; bondholders will be paid $_____ every _______.
9%, $18,000, year.
9%, $18,000, six months.
9%, $9,000, six months.
10%, $10,000, six months.
10%, $20,000, year.
Refer to the information above for Somerville Company.
When Somerville decided to issue the bonds, they executed the bond contract or ____________, which spelled out the specific provisions of the bond issue.
certificate
debenture
indenture
trustee
none of the above
Refer to the information above for Somerville Company.
The provision that allows Somerville to buy back the bonds from the bondholders before maturity makes these bonds
debentures.
convertible.
redeemable.
callable.
none of the above
a.9%, $18,000, year.
b.9%, $18,000, six months.
c.9%, $9,000, six months.
d.10%, $10,000, six months.
e.10%, $20,000, year.
Explanation / Answer
Solution.
Face value of bond = $200,000
Coupan rate = 9%
Compounded Semiannualy. mens every bsix month.
So,
The stated rate of interest on the bonds is 9%.
Bondholders will be paid $9,000
Every Six Month
B. When Somerville decided to issue the bonds, they executed the bond contract or certificate , which spelled out the specific provisions of the bond issue.
A. Certificate
C. The provision that allows Somerville to buy back the bonds from the bondholders before maturity makes these bonds are called " redeemable.".
C.Redeemable.
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