Tell whether the bond described will be issued at a premium, a discount, or at p

Question

Tell whether the bond described will be issued at a premium, a discount, or at par.

1. Colson company issued $200,000 worth of bonds with a stated interest rate of 10%. At the time of issue, the market rate of interest for similar investments was 9%

2.  Dean company issued $100,000 worth of callable bonds with a stated interest rate of 12%. At the time of issue, the market rate of interest for similar investments was 9%

3.  Liddy company issued $200,000 worth of bonds with a stated interest rate of 8%. At the time of issue, the market rate of interest for similar investments was 9%

Explanation / Answer

Hi,

Please find the answers as follows:

Part A:

The bond will be considered to be issued at a Premium.

Explanation:

The market rate of interest on similar bonds is 9% when infact the company is able to issue bonds at 10%, indicating that it can command higher prices (in the form of premium) for its bonds.

Part B:

The bond will be considered to be issued at a Premium.

Explanation:

The market rate of interest on similar bonds is 9% when infact the company is able to issue bonds at 12%, indicating that it can command higher prices (in the form of premium) for its bonds.

Part C:

The bond will be considered to be issued at a Discount.

Explanation:

The market rate of interest on similar bonds is 9% when infact the company is able to issue bonds at 8%, indicating that it has to sell/issue its bonds at a lower price to attract investors.

Thanks.

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