Q27. Which of the following statements regarding zero-coupon bonds is most accurate?

A)   The interest expense in each period is found by applying the discount rate to the book value of debt at the end of the period.

B)   Interest expense is a combination of operating and financing cash flows.

C)   A company should initially record zero-coupon bonds at their discounted present value.

Q28. For a given par value, which of the following debt issues will have the highest cash flows from financing?

A)   Bonds issued at premium.

B)   Zero-coupon bond.

C)   Bonds issued at discount.

Q29. A zero coupon bond, compared to a bond issued at par, will result in higher:

A)   interest expense.

B)   cash flows from operations (CFO).

C)   cash flows from financing (CFF).

Q30. Which of the following statements is FALSE? When a bond is issued at a discount:

A)   the interest expense will be equal to the coupon payment plus the amortization of the discount.

B)   the interest expense will increase over time.

C)   cash flows from financing will be increased by the par value of the bond issue.

Q31. A $1,000 bond is issued with an 8% semiannual coupon rate and 5 years to maturity when market interest rates are 10%. What is the initial liability?

A)   923.

B)   855.

C)   1023.

Q32. A company issued a bond with a face value of $67,831, maturity of 4 years, and 7% coupon, while the market interest rates are 8%.

What is the unamortized discount when the bonds are issued?

A)   $1,748.07.

B)   $498.58.

C)   $2,246.65.

Q33. What is the unamortized discount at the end of the first year?

A)   $1,209.61.

B)   $1,748.07.

C)   $538.46.

答案和详解如下：

Q27. Which of the following statements regarding zero-coupon bonds is most accurate?

A)   The interest expense in each period is found by applying the discount rate to the book value of debt at the end of the period.

B)   Interest expense is a combination of operating and financing cash flows.

C)   A company should initially record zero-coupon bonds at their discounted present value.

Correct answer is C)         

The liability initially recorded for a zero-coupon bond is equal to the proceeds received, which is the present value of the principal repayment discounted at the company's normal borrowing rate. Interest expense is found by applying the discount rate to the book value of debt at the beginning of the period, and there is no cash outflow from operations for a zero coupon bond.

Q28. For a given par value, which of the following debt issues will have the highest cash flows from financing?

A)   Bonds issued at premium.

B)   Zero-coupon bond.

C)   Bonds issued at discount.

Correct answer is A)

The bonds issued at premium will have the highest cash flows from financing.

Q29. A zero coupon bond, compared to a bond issued at par, will result in higher:

A)   interest expense.

B)   cash flows from operations (CFO).

C)   cash flows from financing (CFF).

Correct answer is B)         

The zero-coupon bond will have higher cash flows from operations, as the cash interest expense in this case is zero and no cash is paid until maturity. Candidates should remember that any bond issued at a discount will have more cash flow from operations and less cash flow from financing.

Q30. Which of the following statements is FALSE? When a bond is issued at a discount:

A)   the interest expense will be equal to the coupon payment plus the amortization of the discount.

B)   the interest expense will increase over time.

C)   cash flows from financing will be increased by the par value of the bond issue.

Correct answer is C)         

Upon issuance, cash flow from financing will be increased by the amount of the proceeds.

Q31. A $1,000 bond is issued with an 8% semiannual coupon rate and 5 years to maturity when market interest rates are 10%. What is the initial liability?

A)   923.

B)   855.

C)   1023.

Correct answer is A)

FV = 1000; PMT = 80/2; N = 5 × 2; I/Y = 10/2; solve for PV = 923.

Q32. A company issued a bond with a face value of $67,831, maturity of 4 years, and 7% coupon, while the market interest rates are 8%.

What is the unamortized discount when the bonds are issued?

A)   $1,748.07.

B)   $498.58.

C)   $2,246.65.

Correct answer is C)

Coupon payment = ($67,831)(0.07) = $4,748.17.
Present value of bond: FV = $67,831, N = 4, I = 8, PMT = $4,748.17, CPT PV = $65,584.35.
Discount = $67,831 - $65,584.35 = $2,246.65.

Q33. What is the unamortized discount at the end of the first year?

A)   $1,209.61.

B)   $1,748.07.

C)   $538.46.

Correct answer is B)

Interest expense = ($65,584.35)(0.08) = $5,246.75.
Coupon payment = ($67,831)(0.07) = $4,748.17.
Change in discount = $5,246.75 - 4,748.17 = $498.58.
Discount at the end of the first year = $2,246.65 - 498.58 = $1,748.07.

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