Bond Accounting Principles Video Flashcards
What is a bond?
are a contract to repay borrowing at specified maturity date; interest to be paid at specified intervals until maturity.
What is the nominal rate?
stated rate on the bond (used to calculate interest paid)
What is the market rate?
effective (yield) rate of the bond (used to calculate present value and interest expense)
What is an indenture?
a legal contract representing debt
What is a debenture?
unsecured bond
What is a sinking fund?
funds set aside, typically with a trustee, to retire bonds
What is a discount?
bond is sold for less than face value; effective rate is greater than the stated rate
What is a premium?
bond is sold for more than face value; effective rate is less then the stated rate.
What is amortization for bonds?
transfers the discount or premium to interest expense over the life of the bond
What is the price of bond?
PV single sum (principal, n periods, market rate) + PV annuity (interest payments, n periods, market rate)
What is face value?
par value, or principal of the bond (the amount printed on the bond)
What are the types of bonds?
- Term Bonds
- Serial Bonds
- Convertible Bonds
- Zero-coupon Bonds
- Mortgage Bonds
- Junk Bonds
What is a term bond?
interest payments are made periodically, the face value (principal) is paid on the maturity date
What is a serial bond?
structured so a portion of the bonds mature at intervals
What is a convertible bond?
right to convert a bond into shares of stock
