[p 450-456] The typical bond has an individual face value of $1,000 (though it i

Question

[p 450-456] The typical bond has an individual face value of $1,000 (though it is becoming common to see face values of $5,000 per bond). If a company issues $50,000 in bonds, in most cases that will be 50 bonds at $1,000 each. Perhaps a single investor will buy all 50 bonds, or 50 people will buy 1 bond each, or 5 people will buy 10 bonds each.] Marco Muffilers, Inc. issued bonds with a total face value of $3,000,000 to finance a new manufacturing plant. However, when the bonds were sold, the amount of cash received from the bond issue was only $2,940,000. Based on this information alone, what do we know about the bonds? O Mutiple investors participaled in buying these bonds. The entre issue was purchased by a single investor O The bonds sold at a premium O The bonds sold at a discount Question 2 1 pts p 456-464] The type of note Speedy-Serv signs is the same type of note often used for home morlgages. With this type of note, each payment includes both interest and partial repayment of the principle. Speedy-Serv borrowed $40,000 from the bank and in turn, signed a long-tem promissory note. The note requires Speedy-Serv to make a series of payments to the bank. Each payment consists of both interest and partial repayment of the principal. (With each payment, the amount of outstanding loan principal declines.) This note is called a(an) o Discounted note O Debenture nobe O Instailment note O Unitary note

Explanation / Answer

Question 1:

Since the Issue value of the bond ( $2940000) is less than the face value of the bond ($3000000), it implies that the bond is issued at a premium. The yield to maturity for the bond shall be higher than the coupon rate.

Question 2:

Interest paid along with a partial payment of Principal on a periodical basis is called as an Installment and the note for the payment of such installment is called Installment note

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