21) On January 1, 2011, Alpha Company issued $1,000,000 of 5%, 20-year bonds to buy a new computerized accounting system. The market rate of interest was 6%. The bonds pay interest annually on December 31. How much cash will bondholders receive on December 31, 2011, the first interest payment date?
A) $60,000
B) $50,000
C) $30,000
D) $25,000
22) On January 1, 2011, Nadir Company issued $1,000,000 of 6%, 20-year bonds when the market rate of interest was 5%. The bonds pay interest annually on December 31. These bonds sold at a _____ because the market rate of interest is _____ than the stated interest rate.
A) discount; higher
B) premium; higher
C) discount; lower
D) premium; lower
23) On January 1, 2011, Nadir Company issued $1,000,000 of 6%, 20-year bonds when the market rate of interest was 5%. The bonds pay interest annually on December 31. How much cash did Nadir receive when the bonds were sold?
A) $1,000,000
B) $1,124,622.60
C) $1,065,085.20
D) $950,386
24) On January 1, 2011, Nadir Company issued $1,000,000 of 6%, 20-year bonds when the market rate of interest was 5%. The bonds pay interest annually on December 31. How much cash will bondholders receive when the bonds mature?
A) $1,000,000
B) $1,124,622.60
C) $1,065,085.20
D) $950,386
25) On January 1, 2011, Nadir Company issued $1,000,000 of 6%, 20-year bonds when the market rate of interest was 5%. The bonds pay interest annually on December 31. How much cash will bondholders receive on December 31, 2011, the first interest payment date?
A) $60,000
B) $50,000
C) $30,000
D) $25,000
26) On January 1, 2011, Nadir Company issued $1,000,000 of 6%, 20-year bonds when the market rate of interest was 5%. The bonds pay interest annually on December 31. Nadir uses the effective interest method of amortization. With each annual interest payment the unamortized _____ will grow _____.
A) discount; larger
B) discount; smaller
C) premium; larger
D) premium; smaller
27) When interest is computed on the principal only, it is called simple interest.
28) Discounting means trying to negotiate a cheaper interest rate for a loan.
29) Present value is the amount a future sum of money is worth today.
30) The present value of $100,000 at 6% to be received at the end of ten years will be greater than the present value of $100,000 at 6% to be received at the end of five years.
31) The present value of $100,000 at 5% to be received at the end of ten years will be greater than the present value of $100,000 at 6% to be received at the end of ten years.