Question

1. A bond is issued at premium ________.

		a. when a bond's stated interest rate is less than the market interest rate
		b. when a bond's stated interest rate is higher than the market interest rate
		c. when a bond's stated interest rate is less than the effective interest rate
		d. when a bond's stated interest rate is equal to the market interest rate

2. Alexander Corp. has the following balances as on December 31, 2015:

Total Assets	$89,000
Total Liabilities	54,000
Total Equity	35,000

Calculate the debt to equity ratio. (Round your answer to two decimal points.)

		a. 0.64
		b. 0.04
		c. 1.54
		d. 1.65

3. If a company is financing more assets with debt than with equity, then the ________.

		a. debt to equity ratio will be between 0 to 1
		b. debt to equity ratio will be more than 1
		c. debt to equity ratio will be negative
		d. debt to equity ratio will be equal to 1

Answer 1

Question 1

Correct answer----( b) . when a bond's stated interest rate is higher than the market interest rate.

When coupon rate or stated rate is higher than market rate the investor is willing to pay more hence the bond is issued at premium.

Question 2

Correct answer----(C) 1.54

Debt to equity ratio
Numerator	/	Denominator	=	Debt to equity ratio
Total Liabilities	/	Total Shareholder's equity		Debt to equity ratio
$         54,000.00	/	$      35,000.00		1.54

Question 3

Correct answer----(b). debt to equity ratio will be more than 1.

It can be clearly seen in question 2 example where debt is more than equity and debt equity ratio is more than 1.