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14 Cards in this Set
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- Back
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Define Bond
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A bond is its issuer's written promise to pay an amount identified as the par value of the bond with interest.
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Interest:
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Periodic payments which are stated as a percentage of the par value.
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Par Value: (face amount, face value, or principle)
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Par value is paid at the specified date future date which is known as the maturity date.
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Advantages of bonds:
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Bonds do not affect control of ownership, Interest payments are tax deductible to the company, Bonds can increase the return on equity ratio.
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Disadvantages of bonds:
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Bonds can decrease the return on equity ratio, require payment of interest.
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Define Bond Indenture
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contract between the bond issuer and bondholders. It identifies the rights and obligations of both the bond issuer and the bond holder.
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What does an underwriter do?
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Resells bonds to the public
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What does a bond trustee do?
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Represents and protects the bondholders' interests.
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Market value... aka
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Issue price
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Contract (interest) rate-
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(Coupon rate, stated rate, and nominal rate) The interest rate the bond issuer pays, such as a 10 % contract rate paid annually for 15 years.
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Market interest rate
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The rate that bonds with similar risk will pay.
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Discounts on bonds payable account represents:
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Contract rate is less than the market rate.
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Installment notes
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Obligations paid in a series of periodic payments
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Mortgage notes
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carry a mortgage contract which pledges title to specific assets
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