Use the following information to answer the remaining questions. Scuppers Boat Works, Inc. issued 200 bonds to finance expansion into a new line of designs. The bonds had a total principal of $200,000. The bonds will pay interest semiannually on June 30 and December 31 at a rate of 9% per annum and mature in five years. On January 1, 200A, the day the bonds were issued, similar securities were yielding a rate of 10% per annum. Scuppers' underwriter, Reedham and Quip, purchased the entire issue to resell them to individual investors. Scuppers retained the right to buy back the bonds from the bondholders in two years at a price of $102.
Since Reedham and quip has agreed to buy the bonds from Scuppers, Reedham and Quip would be referred to as the
a. indenture
b. custodian
c. investment banker
d. trustee
e. underwriter.
Answer: e. underwriter.
The provision allowing retirement of the bonds before maturity makes these ______ bonds.
a. Debenture
b. subordinated
c. convertible
d. redeemable
e. callable
Answer: e. callable
Should Scrubbers decide to redeem the bonds after two years have gone by, each individual bond will be bought back for
a. $1,020
b. $102
c. $1,000
d. $1,002
e. $981
Answer: a. $1,020
-individual bond has a par value of $1,000 (or $200,000 total par value / the total of 200 bonds issued) will be bought back for $1,020 (or the $1,000 par value of each individual bond x 1.02)
The 10% rate for similar securities on the date of issue is known as the
a. stated rate
b. par rate
c. market rate
d. coupon rate
e. contract rate
Answer: c. market rate
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