Introduction to Bonds and Bond Characteristics

Which of the following may be a disadvantage to issuing bonds to raise long-term capital? A) interest payments to bondholders are fixed charges B) ownership and control of the company are unaffected C) positive financial leverage may be achieved D) interest expense is tax deductible

A company issues a $1,000,000, 6%, 10 year bond when the market rate was 4%, and the bond pays interest semi-annually.  The interest paid each period will be:

Jack Henry Corporation issued $100,000 worth of 8% bonds quoted at 96 when the market rate of interest was 10%. Kraft Corporation issued $100,000 worth of 8% bonds when the market rate of interest was 8%. Both bonds mature in 5 years. Which of the following statements are true? a. Jack Henry’s bonds result in less interest expense than Kraft’s bonds. b. Jack Henry’s bonds result in greater interest expense than Kraft’s bonds. c. Jack Henry’s pays its bondholders a greater amount of cash over the term of the bond as compared to Kraft’s bondholders. d. Jack Henry’s pays its bondholders a reduced amount of cash over the term of the bond as compared to Kraft’s bondholders.

A bond issued and supported by the general credit standing of the corporation, rather than supported with pledged assets, is called A) a serial bond. B) a debenture. C) an indenture. D) callable bond.