- 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
Which one of the following best illustrates the relationship between the face amount of a non-interest-bearing note and its present value?
B. The relationship depends on the prevailing interest rate.
C. The face note amount is greater than the present value.
A. The face amount of the note is the same as the present value.
B. The relationship depends on the prevailing interest rate.
C. The face note amount is greater than the present value.
Correct Answer: C
The face amount of the note includes imputed interest and is greater than the present value, which is the known or implied cash price.
User Contributed Comments 7
| User | Comment |
|---|---|
| jgraham6 | I'm assuming "non-interest bearing" means Zero Coupon Bond, yes? |
| yu0825 | I think so, Jgraham |
| dah62 | Surely the prevailing interest rate matters too in terms of discounting? |
| charlie1 | yes the prevailing interest rate matters but no matter what that is (unless it's a negative number) C holds true. |
| YOUCANDOIT | zero coupon bonds are issued at a discount |
| sheridanla | Answer C assumes a positive interest rate |
| houstcarr | C is dead wrong in the modern era, pull up a Swiss gov't zero on your BB. Answer is B. |