1. An investor purchases a 20-year, $1,000 par value bond that pays semiannual interest of $40. If the semiannual market rate of interest is 5%, what is the current market value of the bond.

a. $828. b. $893.

c. $1,000. d. $1,686

2. On January 1, 2016, Legion Company sold $200,000 of 10% ten-year bonds. Interest is payable semiannually on June 30 and December 31. The bonds were sold for $177,000, priced to yield 12%. Legion records interest at the effective rate. Legion should report bond interest expense for the six months ended June 30, 2016, in the amount of:

a. $8,850. b. $10,000.

c. $10,620. d. $12,000.

3. A bond issue with a face amount of $500,000 bears interest at the rate of 10%. The current market rate of interest is 11%. These bonds will sell at a price that is:

a. Equal to $500,000. b. More than $500,000.

c. Less than $500,000.

d. The answer cannot be determined from the information provided.