Bonds Flashcards
1
Q
What are the yearly payments received/paid out for bonds?
A
Interest payments only.
Face Value x Coupon Rate = yearly payments/2 = semi-annual interest payments
2
Q
How do you calculate the Interest expense for Bonds?
A
Face x Coupon - premium amortization or + discount amortization
3
Q
True/False:
Straight Line method of amortization is allowed under GAAP and IFRS
A
False
IFRS does NOT allow the straight line method
GAAP allows it, but it is not considered GAAP; can only use it if it isn’t materially different from effective interest method.
4
Q
Market price of a bond issued at a premium is equal to the PV of its principal amount…
A
and the present value of all future interest payments at the market (effective) interest rate
