P9-74A (similar to) Help On February 28, 2016, Stingray Corp. issues 8%, 10-year

Question

P9-74A (similar to) Help On February 28, 2016, Stingray Corp. issues 8%, 10-year bonds payable with a face value of S900 000 The bonds pay interest on February 28 and August 31. Stingray Corp. amortizes bond discount by the straight-line method Requirement 1. If the market interest rate is 7% when Stingray Corp. issues its bonds, will the bonds be priced at par, at a premium, or at a discount? Explair The 8% bonds issued when the market interest rate is 7% will be priced at | They are 1 in this market, so investors will pay | to acquire them. a discount a premium

Explanation / Answer

The 8% bonds issued when the market interest rate is 7% will be priced at PREMIUM .They are ATTRACTIVE in this market, so investors will pay MORE THAN PAR VALUE to acquire them.

(if the coupon rate (8% in this case) is greater than prevailing market rate (7%) , the bonds will fetch a premium and vice versa).

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