Bonds issued by a firm have a par value of $100,000. These bonds' unamortized premium is $2,700. The gain or loss on this retirement is $3,700 gain if the corporation retired these bonds at a call price of 99.
The gain or loss on a bond redemption can frequently be determined very easily. The solution can be found by taking the proceeds of the bond's redemption and subtracting your bond purchase price from it. You benefit if the result is positive. If it's negative, your bond investment has cost you money.
A bond's capital gains yield is determined in the same manner a stock's capital gains yield is determined: by dividing the bond's price increase by its initial price. For instance, the capital gains yield on a bond is 20% if it is bought for $100 (or par) and later increases to $120.
The complete question is
A company has bonds outstanding with a par value of $100,000. The unamortized premium on these bonds is $2,700. If the company retired these bonds at a call price of 99, the gain or loss on this retirement is:
A. $1,000 gain
B. $1,000 loss
C. $2,700 loss
D. $2,700 gain
E. $3,700 gain
Therefore the correct answer is option E )$3,700 gain.
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