FF&T Corporation is a confectionery wholesaler that frequently buys and sells securities to meet various investment objectives

E 12-2 Securities held-to-maturity

FF&T Corporation is a confectionery wholesaler that frequently buys and sells securities to meet various investment objectives. The following selected transactions relate to FF&T's investment activities during the last two months of 2011. At November 1, FF&T held $48 million of 20-year, 10% bonds of Convenience, Inc., purchased May 1, 2011, at face value. Management has the positive intent and ability to hold the bonds until maturity. FF&T's fiscal year ends on December 31.


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Bonds are frequently issued at amounts greater or less than face value

Bonds are frequently issued at amounts greater or less than face value. Describe how the market interest rate, relative to the contractual interest rate, affects the selling price of bonds. Also, explain the rationale for requiring an investor to pay accrued interest when a bond is purchased between interest payment dates.

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