Question : Learning Objective 7-8 (Appendix 7) 1) Discounting means ________. A) selling bonds : 1253351

Learning Objective 7-8 (Appendix 7)

1) Discounting means ________.

A) selling bonds for less than face value

B) calculating the present value of future cash flows

C) selling bonds for more than face value

D) selling bonds at par value

2) Buzz Corporation issued $50,000 worth of 10-year, 8% bonds for $48,359.66. The $48,359.66 is the ________.

A) face value

B) present value

C) future value

D) stated rate

3) 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. On its balance sheet at December 31, 2011, Alpha will show bonds payable of $1,000,000 ________.

A) minus the unamortized discount

B) plus the unamortized discount

C) minus the unamortized premium

D) plus the unamortized premium

4) Z Biz sold a 5-year, $1,000, zero-interest bond for $497.18 when the market rate of interest was 15%. The present value of the principal is ________.

A) $74.58

B) $5,000

C) $497.18

D) $1,000.00

5) Stanton Corporation sold a 10-year, $1,000, zero-interest bond when the market rate of interest was 7%. The present value of the principal is ________.

A) $508.35

B) $700.00

C) $1,000.00

D) $1070.00

6) Z Best, Inc. sold a 5-year, $1,000, zero-interest bond for $497.18 when the market rate of interest was 15%. The total cost of borrowing $497.18 is ________.

A) $750.00

B) $502.82

C) $497.18

D) $1,000.00

7) 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. To calculate the amount of cash that Alpha received, you must find ________.

A) only the present value of $1,000,000

B) only the present value of an annuity of $60,000

C) both the present value of $1,000,000 and the present value of an annuity of $50,000

D) both the present value of $1,000,000 and the present value of an annuity of $60,000

8) 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. To calculate the amount of cash that Alpha received, you must use a discount rate of ________.

A) 20%

B) 6%

C) 5%

D) The answer cannot be determined from the information given.

9) A series of equal payments in which the payment is made at the end of each period is a(n) ________.

A) annuity due

B) ordinary annuity

C) prepaid annuity

D) beginning annuity

10) Ima Baroque wants to borrow $100,000 in order to expand Bank, Rupp & Baroque, Inc. If she repays the money in equal monthly installments over two years, she can get an interest rate of 12%. What interest rate and periods should you use to calculate the amount of each installment payment?

A) 12% for twenty four periods

B) 1% for twenty four periods

C) 12% for two periods

D) 24% for one period