MULTIPLE CHOICE QUESTIONS : 1. When a bond sells at a premium: A. The contract r

Question

MULTIPLE CHOICE QUESTIONS :

1. When a bond sells at a premium:
A. The contract rate is above the market rate
B. The contract rate is equal to the market rate
C. The contract rate is below the market rate
D. It means that the bond is a zero coupon bond
E. The bond pays no interest

2. A bond sells at a discount when the:
A. Contract rate is above the market rate
B. Contract rate is equal to the market rate
C. Contract rate is below the market rate
D. Bond has a short-term life
E. Bond pays interest only once a year

3. The Discount on Bonds Payable account is:
A. A liability
B. A contra liability
C. An expense
D. A contra expense
E. A contra equity

4. The amount of income earned per share of a company's common stock is known as:
A. Restricted retained earnings per share
B. Earnings per share
C. Continuing operations per share
D. Dividends per share
E. Book value per share

5. The price-earnings ratio is calculated by dividing:
A. Market value per share by earnings per share
B. Earnings per share by market value per share
C. Dividends per share by earnings per share
D. Dividends per share by market value per share
E. Market value per share by dividends per share

Explanation / Answer

Answer:

1) Correct Answer is A. The contract rate is above the market rate

When the market rate is less than the coupon rate, the bond sells at a premium. The premium declines as maturity approaches.

2) Correct Answer is C. Contract rate is below the market rate.

When the market rate exceeds the coupon rate, the bond sells at a discount. The discount declines as maturity approaches.

3) Correct answer is D. A contra expense.

4) Corrent Answer is B. Earnings per share

Earnings Per Share = Profit attributable to Common Stock holders / NO. of shares of common stock outstanding at the end of year

5) Corrent Answer is A. Market value per share by earnings per share.

PE Ratio = MPS / EPS

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