Question

State whether each of the following statements is true or false. A disadvantage of issuing bonds is that it puts current shareholders at risk of losing full control of the 1 company. 2. 3. Financial leverage is when a company borrows at one rate and invests at a different rate. Bonds, like shares, may be bought by investors on organized securities exchanges. Convertible bonds are also known as callable bonds. The market rate is the rate investors demand for lending funds. C 5. Save for Later Attempts: 0 of 1 use Suby True False

Answer 1

SOLUTION : 1: True or False
	Answer = 1	False
	Answer = 2	True
	Answer = 3	True
	Answer = 4	False
	Answer = 5	True
SOLUTION : 2
		Par Value of the Bonds =	$                     3,540,000
		Issued price	$                     3,166,065
		Discount to be amortized	$                         373,935
		Rate of interest of Coupon	6%
		Yearly Coupon Amount	$                         212,400
		Half yearly coupon amount =	$                         106,200
		Market Rate of interest =	8%
		Half yearly interest rate = 8% / 2 =	4.00%
	Schedule of Interest revenue and bond Discount Amortization
	Effective interest Method
	Date	Interest Payment	Interest Expenses( 4% of Bond amor Cost)	Discount Amortization	Bond Amortized Cost
	1/1/2021				$                3,166,065
	7/1/2021	$                                                                  106,200	$                         126,643	$                20,443	$                3,186,508
	1/1/2022	$                                                                  106,200	$                         127,460	$                21,260	$                3,207,768
	7/1/2022	$                                                                  106,200	$                         128,311	$                22,111	$                3,229,879
	1/1/2023	$                                                                  106,200	$                         129,195	$                22,995	$                3,252,874
	7/1/2023	$                                                                  106,200	$                         130,115	$                23,915	$                3,276,789
	1/1/2024	$                                                                  106,200	$                         131,072	$                24,872	$                3,301,661