Introduction to Bonds and Bond Characteristics Video Lessons

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Problem: 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.

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Problem Details

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.

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