Exam 3

Question 1

Unsecured bonds are called

Answer 1

debentures

Question 2

a (partial) repayment of the original amount borrowed

Answer 2

principal

Question 3

a payment for the cost of using the lenders funds

Answer 3

interest

Question 4

a single lump-sum payment due on the day that the contract expires
-One type of bond cash payment

Answer 4

“par value” “face value” “maturity value” or “principal amount”

Question 5

a series of equal payments at regular intervals over the term of the contract. Each of the payments is determined by the par value of the bond and the coupon rate/nominal interest rate/ stated interest rate/contractual interest rate and the number of compounding periods per year
-One type of bond cash payment

Answer 5

Coupon payments

Question 6

determines both when the par value payment is DUE and the NUMBER of coupon payments to be made over the remaining term of the agreement

Answer 6

Expiration/Maturity Date

Question 7

Issue Price (3 definitions)

Answer 7

• Price at which the bond was originally issued
• Amount received by the firm from lenders (bond-holders) at the date of issue
• Present value of future maturity payment and coupon payments discounted at the market rate of interest at the time the bond was issued

Question 8

Interest rate which the market (lenders) demanded when bond was issued.

Answer 8

Historical Interest Rate

Question 9

Interest rate at which the bonds are currently trading on the market

Answer 9

Current interest rate

Question 10

Issue Price-Par Value

Answer 10

Premium (Discount) at Issue

Question 11

Present value of all remaining future cash flows using the historical interest rate

Answer 11

Net Book Value

Question 12

Present Value of all remaining future cash flows using the current market interest rate

Answer 12

Current Market Value

Question 13

Net book value at start of period x Historical interest rate per period

Answer 13

Interest Expense (per compounding period)