## When a contract rate is above the market rate a bond sells at a discount?

However, if the market rate is higher than the contract rate, the bonds will sell for less than their face value. Thus, if the market rate is 14% and the contract rate is 12%, the bonds will sell at a discount.

## When the contract rate is above the market rate a bond sells at a discount quizlet?

2. Bonds require payment of both periodic interest and the par value at maturity. If the market rate is higher than the contract rate, the bonds will sell at a discount-less than face value. the difference between what gets borrowed and what gets paid back.

## When the contract rate is above the market rate?

If the contract rate is greater than the market rate, the bond will sell at an amount greater than face (this is known as a premium). Cash is always debited for the amount of cash received by the company (as determined in the present value calculations above).

## When a bond sells at a discount when?

Bonds are sold at a discount when the market interest rate exceeds the coupon rate of the bond. To understand this concept, remember that a bond sold at par has a coupon rate equal to the market interest rate.

## When the market rate of interest on bonds is higher than the contract rate the bond will sell at?

a discount. When the market rate of interest on bonds is higher than the contract rate, the bonds will sell at a discount.

## When a bond sells at a premium the contract?

When bonds are issued at a discount, its coupon rate or contract rate is lower than the market rate. When bonds are issued at a premium, its coupon rate or contract rate is higher than the market rate.

## When a bond is issued at a discount is the market interest rate higher or lower than the contract interest rate on the bond?

A discount bond is offered at a lower price than the prevailing market rate. Buying the bond at a discount means that investors pay a price lower than the face value of the bond. However, it does not necessarily mean it offers better returns than other bonds. Let take an example of a bond with a \$1,000 face value.

## When a bond sells at a discount quizlet?

When selling a bond at a discount the interest lowers below the coupon rate. This causes the bond’s price to rise above its par value.

## When a bond is selling at a discount quizlet?

A bond will sell at a discount when the market, or effective, rate of interest is higher than the stated rate of interest on the bond. In contrast, when the market or effective rate of interest is lower than the stated rate, the bond will sell at a premium.

## Why bonds are issued at discount and premium?

Why a Bond Trades at a Premium or a Discount

A bond trades at a premium when its coupon rate is higher than the prevailing interest rates. A bond trades at a discount when its coupon rate is lower than the prevailing interest rates.

## When a bond is issued at a price higher than the face value?

A bond that’s trading at a premium means that its price is trading at a premium or higher than the face value of the bond. For example, a bond that was issued at a face value of \$1,000 might trade at \$1,050 or a \$50 premium.

## What happens to interest expense When a bond is issued at a discount?

If a bond is issued at a premium or at a discount, the amount will be amortized over the years through to its maturity. On issuance, a premium bond will create a “premium on bonds payable” balance. At every coupon payment, interest expense will be incurred on the bond.

## When bonds are issued at a premium the quizlet?

When a company issues a bond at a discount: the company’s interest expense will be more than the interest paid each year. When bonds are issued at a premium: interest expense on the bonds will be less than the interest paid.

## When a bond issue sells for less than its face value the market rate of interest is?

When a bond issue sells for less than its face value, the market rate of interest is: Higher than the stated rate of interest. On June 30, 2013, Mabry Corporation issued \$5 million of its 8% bonds for \$4.6 million.

## Should you buy a bond at a discount or premium rate?

Bonds bought at a premium can actually help reduce volatility, generate greater cash flow, and even provide higher yields. A basic rule of thumb suggests that investors should look to buy premium bonds when rates are low and discount bonds when rates are high.

## When bonds are issued at a discount the bond discount quizlet?

Terms in this set (16) When a bond is issued at a​ discount, the semiannual amount of interest expense will be greater than the cash payment for interest. because interest expense includes both cash interest and amortization of the discount.

## What is a premium bond quizlet?

A premium bond is defined as a bond that: has a market price that exceeds par value.

## When bonds are sold at a discount and the effective interest method is used at each subsequent interest payment date the cash paid is?

When bonds are sold at a discount and the effective interest method is used, at each subsequent interest payment date, the cash paid is: Less than the effective interest. A bond is issued with a face amount of \$500,000 and a stated interest rate of 10%.

## When bonds are issued at face amount What happens to the carrying value and interest expense over the life of the bonds?

When bonds are issued at face amount, what happens to the carrying value and interest expense over the life of the bonds? Carrying value and interest expense remain unchanged. At face amount. Animal World issues ten-year bonds at their face amount of \$100 million with the option to call the bonds at \$102 million.

## Why is interest expense higher than interest?

When using the effective interest method, the debit amount in the discount on bonds payable is moved to the interest account. Therefore, the amortization causes interest expense in each accounting period to be higher than the amount of interest paid during each year of the bond’s life.

## How do we account for bonds when they are issued at par at a premium and at a discount?

Recording a bond issued at par value is a simple process, since there is generally no premium or discount associated with the bond’s sale. To record interest paid on a bond issued at par value, debit the amount paid to the bond interest expense account and credit the same amount to the cash account.

## Why would you buy a bond at a premium?

A person would buy a bond at a premium (pay more than its maturity value) because the bond’s stated interest rate (and therefore the bond’s interest payments) will be greater than those expected by the current bond market. It is also possible that a bond investor will have no choice.