41. If an issuer sells a bond at any other date than the interest payment date:
A. This means the bond sells at a premium.
B. This means the bond sells at a discount.
C. The issuing company will report a loss on the sale of the bond.
D. The issuing company will report a gain on the sale of the bond.
E. The buyer normally pays the issuer the purchase price plus any interest accrued since the last interest payment date.
42. A company issues bonds at par on April 1. These 9% bonds have a par value of $100,000 and pay interest annually. April 1,is four months after the most recent interest payment date. How much total cash interest is received on April 1 by the bond issuer?
A. $750
B. $5,250
C. $1,500
D. $3,000
E. $6,000
43. A company issues bonds at par on June 1. These 7% bonds have a par value of $500,000 and pay interest annually. June 1 is five months after the most recent interest payment date. How much total cash interest is received on June 1 by the bond issuer?
A. $0
B. $2,916.66
C. $100,000.00
D. $14,583.33
E. $35,000.00
44. Operating leases differ from capital leases in that
A. For a capital lease, the lessee records the lease payments as rent expense, but for an operating lease, the lessee reports the lease payments as depreciation expense.
B. For an operating lease, the lessee depreciates the asset acquired under lease, but for the capital lease, the lessee does not.
C. Operating leases create a long-term liability on the balance sheet, but capital leases do not.
D. Operating leases do not transfer ownership of the asset under the lease, but capital leases often do.
E. Operating lease payments are generally greater than capital lease payments.
45. Which of the following statements is true? For the issuer:
A. Interest paid on bonds is tax deductible.
B. Interest paid on bonds is not tax deductible.
C. Dividends paid to stockholders are tax deductible.
D. Bonds are assets.
E. Bonds always decrease return on equity.
46. A bondholder that owns a $1,000, 10%, 10-year bond has:
A. Ownership rights in the company who issued the bond.
B. The right to receive $10 per year until maturity.
C. The right to receive $1,000 at maturity.
D. The right to receive $10,000 at maturity.
E. The right to receive dividends of $1,000 per year.
47. Sinking fund bonds:
A. Require the issuer to set aside assets in order to retire the bonds at maturity.
B. Require equal payments of both principal and interest over the life of the bond issue.
C. Decline in value over time.
D. Are registered bonds.
E. Are bearer bonds.
48. Bonds that have an option exercisable by the issuer to retire them at a stated dollar amount prior to maturity are known as:
A. Convertible bonds
B. Sinking fund bonds
C. Callable bonds
D. Serial bonds
E. Junk bonds
49. A bond traded at 102½ means that:
A. The bond pays 2.5% interest.
B. The bond traded at $1,025 per $1,000 bond.
C. The market rate of interest is 2.5%.
D. The bonds were retired at $1,025 each.
E. The market rate of interest is 2½% above the contract rate.
50. Secured bonds:
A. Are also referred to as debentures.
B. Have specific assets of the issuing company pledged as collateral.
C. Are backed by the issuer's bank.
D. Are subordinated to those of other unsecured liabilities.
E. Are the same as sinking fund bonds.