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State Street Beverage Company issues $812,000 of 8%, 10-year bonds on March 31, 2017. The bonds pay interest on March 31 andIf bonds with a face value of $200,000 are issued at 95, the amount of cash proceeds is A. $180,000 B. $200,000 C. $199,905 DElectric, Inc. was incorporated on January 1, 2016. Electric issued 9,000 shares of common stock and 1,100 shares of preferre

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Answer #1

Since the market rate is 9% and the contract is 8%, then the bond is issued at a discount. In simple terms, if the contract rate is less than the market rate, the bond is issued at discount. The logical explanation for this is that since a higher rate of interest is in the market, investors will not prefer to buy a bond with a lower interest rate, hence it is sold at discount to compensate for the lower interest rate on the bond.

Hence, the correct answer is Option D.

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