Bonds

Question 1

How do you calculate a bond issued at par

Answer 1

yield rate and coupon rate are the same. Since they are the same we can simply multiply bond and rate.

Question 2

How do you calculate a bond issued at discount

Answer 2

1) How many pay periods (10)
2) Market or yield rate / 2 if semi annually = (x) (5) I.E
3) Bond (x) coupon/2= Interest
4) Principle = PV of 1.00 at yield rate for 10 periods (x) 5
5) Interest = PV of ordinary annuity 10 periods x yielded interest

Question 3

If interest is paid semi annually

Answer 3

STOP FORGETTING COUPON RATE /2 for market rate.

Question 4

When calcing dont get PV factor = market rate/2 if paid semi annually

Question 5

What is the debt increase from bonds when stock warrants are issued with the bonds being received

Answer 5

Warrants reduce the debt by fair value of warrant (x) shares issued.

Question 6

What is the net carry value of bonds?

Answer 6

Issuance (-) Transaction costs

Question 7

What is the issuance of a bond that is 1,000

Answer 7

If price is 1k and it is asking what the bond issuance should be we do the following:
1) PV factor of (1,000)
2) PV factor of 1k (x) coupon rate

Question 8

How is bond liability presented

Answer 8

Presented as Principle (+) accrued Interest. Transactions costs do not increase or decrease the liability

Question 9

What is the amount of discount/liability on a bond

Answer 9

Difference of bal sheet presentation (liability) and income statement presentation (expense). The difference of these presentations is what is unamortized.

Question 10

What is bonds payable?

Answer 10

Amount of bond that is due for that current year or as of. Carry Value of bond (-)/(+) unamortized discount
Carry value = what we got the bond for
Unamortized discount = income-bal sheet presentations

Question 11

What is bond issuance cost

Answer 11

Promotion costs - Printing cost - underwriter commissions

Question 12

Rolling over bond

Answer 12

When rolling over a bond to not pay another one: the long term liability will increase by carry amount only.

Question 13

What is the carry amount of a bond at the end of its life using either Effective vs straight line

Answer 13

CV of bond and RE will be the same at the end of the life.

Question 14

What is the unamortized premium and discount

Answer 14

Carry value of note (x) yield rate

Question 15

What is the effective interest method on discount

Answer 15

Bal sheet - income statement = unamortized
Unamortized (+) CV of bond= New carry value
New CV of bond (x) yield rate = interest expense

Question 16

What is the behavior of interest expense is a bond

Answer 16

Interest expense goes down every period on premium
Interest expense goes up on discount
Interest expense is calced on the date of issuance
If interest is paid semi annually than the amount that will accrued will be based of that

Question 17

What is the balance on premium after the first payment

Answer 17

Unamortized prem (-) amortized prem