- CFA Exams
- CFA Exam: Level I 2021
- Study Session 8. Financial Reporting and Analysis (3)
- Reading 28. Non-current (Long-term) Liabilities
- Subject 1. Accounting for Bond Issuance, Bond Amortization, Interest Expense, and Interest Payments
CFA Practice Question
For a bond issue that sells for more than the face amount of the bonds, the market rate of interest is ______
B. the same as the interest rate stated in the bond indenture.
C. determined using the interest rate stated in the bond indenture.
A. less than the interest rate stated in the bond indenture.
B. the same as the interest rate stated in the bond indenture.
C. determined using the interest rate stated in the bond indenture.
Correct Answer: A
A bond will sell at a premium (for more than the face amount of the bonds) when the market rate of interest is lower than the stated interest rate, due to demand for the bonds from investors.
User Contributed Comments 2
| User | Comment |
|---|---|
| achu | Think about what happens to bond prices when interest rates change. Bond values increase when rates fall, BVs decrease when interest rates rise. |
| Freddie33 | What's bond indenture? |