5.4 & 5.5 - Bonds Flashcards
The interest to be paid to the investors in cash. Specified in the bond contract.
Stated (nominal or coupon) rate
The rate of interest actually earned by the bond holder:
Market (effective or yield) rate
If the market (yield / effective) rate is higher than the stated rate, there is a premium or discount? The bond sells for more or less than the face amount?
Discount and sells for less than the face amount
If the market (yield / effective) rate is lower than the stated rate, there is a premium or discount? The bond sells for more or less than the face amount?
Premium and sells for more than the face amount
Unsecured bonds:
Debentures
Secured bonds:
Collateral trust bonds
Convertible into common stock of the debtor at the option of the bond holder:
Convertible bonds
Convertible bond must be converted into capital stock:
Warrants can be bought and sold separately from the bonds:
Nondetachable warrants
Detachable warrants
Bonds that the issuer may call and redeemed pro rata annually in a series of annual installments
Serial bonds
Sold with no stated interest but rather at a discount and redeemed at the face value without periodic interest payments
Zero coupon bonds
Bonds payable should be recorded as a long-term liability at face value adjusted to PV of future CFs by subtracting what and adding what?
Subtracting unamortized discounts and adding unamortized premiums
Bond interest is calculated as:
Coupon rate X face
What rate is used to determine the PV factor?
The market rate (also known as yield or effective rate)
Bond issuance costs include:
Legal fees, accounting fees, underwriting commissions, and printing
Bond issuance costs are presented on the balance sheet as a direct reduction to the:
Carrying value of the bond
