From page 9-2 of the VLN, what is the first thing you want to identify when approaching a bond problem?Group of answer choicesA. Annual bond or semiannual bondB. Whether the market rate is different from the stated rate.C. The cash flows provided by the bond.D. The company's debt to equity ratio. Part A: Long Term DebtAnancing AltemativesDebt versus EquityInterest versus dividendsCapital structureFinancial leverageTypes of Long Term Debt1. Notes Payable or Installment Notes2. Leases3. BondsInstallment NotesRecurring payments (installments)Once all payments are made the debt is extinguishedInstallment payments (includes both principal (decrease in carrying value) and interest)Practice: Loan Amortization schedule:You purchased a car for $22,999.79 (tax, tag, title) and agreed to make monthly payments of$370.41 for 6 years (72 months). Annual interest rate 5% (monthly 0.41667%)TimeCash PaymentInterest expense @Decrease inCarrying Value.0041667Carrying ValueToday1" payment2nd payment3rd payment4th payment5th payment$22,999.7922,725.2122,449.4922,172.6221,894.60$274.58$370.41370.41370.41$95.8394.69275.7293.54276.87370.4192.39278.02370.416-71本本******payments368.87******72nd payment370.411.54368.87You are getting ready to make your 5th car payment. Determine your interest expense, decrease incarrying value and new debt balance after the payment has been made.Interest expense:Decrease in Carry value:New Carrying value: LeasesA lease provides the lessee (user) the right to use an asset for a specified period of time.BONDSWhat are Bonds and why do corporations issue them?TERMS (pay close attention to terminology):Face value (aka bond payable, bond principal, or maturity value) is the contract amount and is afuture cash flow the company will pay at maturity.Bond Liability (aka bond carrying amount) the liability on the balance sheet related to the bondand is made up of bond payable + bond premium or bond payable-bond discount.Stated rate (aka contract rate) the rate promised by the issuer. It is the rate used to calculate theinterest paymént. (Bond payable x stated rate = annual interest payment, a cash flow)ABC Corporation$1,00010% interestInterest payableJune 30 and December 31Matures December 31, 20XE5 year bond+Following are the cash flows provided by the above bond ($1,000 face, 10% semi-annual interest)$1000$50$50$50$50$50$50$50$50$50$50148.9.10Market rate (aka, effective interest rate) the true interest rate yielded by the bond1.The market rate is used to calculate the bond issue price; andit is used to calculate bond interest expense (bond liability x market rate annual interestexpense).2.Parts B & C: BOND PRICING and RECORDINGWe will use the present value concepts to determine the issue price of the bonds (Present valuetables from Module 8 in Canvas; or use your TI BAII Plus Financial Calculator).

When a firm issues bonds to earn cash, bonds payable are documented. Money market securities and…

From page 9-2 of the VLN, what is the first thing you want to identify when approaching a bond problem? Group of answer choices A. Annual bond or semiannual bond B. Whether the market rate is different from the stated rate. C. The cash flows provided by the bond. D. The company's debt to equity ratio.

From page 9-2 of the VLN, what is the first thing you want to identify when approaching a bond problem? Group of answer choices A. Annual bond or semiannual bond B. Whether the market rate is different from the stated rate. C. The cash flows provided by the bond. D. The company's debt to equity ratio.

FINANCIAL ACCOUNTING

10th Edition

ISBN:9781259964947

Author:Libby

Publisher:Libby

Chapter1: Financial Statements And Business Decisions

Section: Chapter Questions

Problem 1Q

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Which of the following is true about a bondholder? At the beginning of the life of the bond, the firm will pay a price for a bond and will then receive coupon payments throughout the life of the bond and receive the return of the principal amount at maturity At the beginning of the life of the bond, the firm will receive a price for a bond and will then pay coupon payments throughout the life of the bond and pay the return the principal amount at maturity At the beginning of the life of the bond, the bondholder will pay a price for a bond and will then receive coupon payments throughout the life of the bond and receive the return of the principal amount at maturity At the beginning of the life of the bond, the bondholder will receive a price for a bond and will then pay coupon payments throughout the life of the bond and pay the return the principal amount at maturity
For a standard corporate bond, when are the following characteristics of the bond determined? ······ The amount that the issuer returns to the bondholder, when the bond matures. The maturity date. The bond's market yield. The bond's market price. The price that the bondholder pays to the issuer to acquire the bond. The amounts of any interest payments. The bond's coupon rate. The dates of any interest payments. 1. 2. Fixed before the bonds are sold and does not change. Fixed when the bonds are sold and does not change. 3. Fluctuates continually.
Identify/explain the relationship between coupon rate and yield to maturity for: Discount Bonds Premium Bonds Par Value Bonds
From page 9-3 of the VLN, when determining the issue price of a bond, which interest rate would you use? Group of answer choices A. Stated rate B. Market rate C. Nominal rate D. Compound rate
What happens to Bond prices, quantities, and interest rates if (Make sure to include the supply and demand graph for bonds for each question : a) Decrease in wealth b) Increase in risk c) Decrease in liquidity
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What is the Par Value of Bonds, Coupon Interest Rate, the Maturity Date, Call Provisions of a Bond, Sinking Fund and Convertible Bonds?
1. what are bonds and why would a company use them? 2. how do you value a bond? 3. what are bond yields and what are the determinants of bond yields?
How are the bonds issued, what is the appropriate journal entry? Provide example for issuing bonds. How do we determine the present value of a bond when market rate differs from its contract rate? How do we record the interest payment (provide examples for both premium and discount amortization), using the effective interest method? What is the difference between the effective interest method and the straight line method when amortizing either a discount or a premium? Cite and give credit to the author that you are citing.
How do you calculate the price of a bond? It is: The sum of the present value of the face amount and the value of credit default swaps The sum of the future value of annuity of interest and the fair value of its inventory The sum of the present value of annuity of interest and the face amount of the bond The sum of the current value of the issuing corporation of accounts receivables None of the above.