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Blueprint Problem: Bonds - Issued at Premium

Bonds

When a company requires more cash than it currently has, it can acquire this cash very quickly through the issuance of a bond. When a bond is issued, it must first be authorized by the U. S. Securities and Exchange Commission (SEC). The terms of the bond are laid out in the bond indenture, and bondholders are given a bond certificate as proof of ownership over the debt.

A bond is a form of debt, so issuing a bond immediately increases both Selectassets and expensesassets and liabilitiesliabilities and stockholders' equityrevenue and expensesCorrect 1 of Item 1 on the Selectbalance sheetincome statementstatement of cash flowsstatement of retained earningsCorrect 2 of Item 1

When a corporation issues bonds, the proceeds received for the bonds depend on the following: 1. The face amount of the bonds, which is the amount due at the maturity date. 2. The stated interest rate on the bonds. 3. The market interest rate of interest.

If an individual bond is worth $8,000 and it is one of 1,000 bonds in its associated issuance, what is the bond issue? $

A bond issued at 103 is issued at:

At Par	SelectYesNoCorrect 4 of Item 1
Discount	SelectYesNoCorrect 5 of Item 1
Premium	SelectYesNoCorrect 6 of Item 1

If the company issues the bonds with an 8% interest rate and bonds of similar risk are paying 7% interest, assess the following:

Market interest rate:	%
Coupon interest rate:	%

Bonds Issued at a Premium

Assume that a company issues a bond at 112 having a face value of $1,000 and a coupon interest rate of 10%. The bond pays interest annually, has a five-year maturity time frame, and bonds of similar risk are currently paying interest rates of 7%. The bond's issue price would be $, it would make an annual interest payment on the bond in the amount of $, and at the end of five years would pay back the principal of $. The total premium on the bond is $. Because bonds issued at a premium result in the company receiving more money up front, the bonds are actually costing the company less than just the periodic interest payments. For this reason, total interest expense equals the total interest paid over the life of the bond less the total premium on the bond. Total interest expense on this bond is $.

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