Concept Introduction:
Bonds: Bonds are debt instruments issued by the borrower company to its lenders. Bonds are issued at a specified rate of interest and for a specified time period. The bondholders get a fixed rate of interest on the bonds and repayment of the bonds at the maturity date.
Issue Price : The issue price is the amount of money received the borrower from the issue of bonds. The bonds may be issued at a higher or lower price than their face value that means on premium or on discount.
Contract rate : Contract rate is the rate of interest prescribed in the bond indenture that shall be paid to the bondholder periodically.
Market rate : Market rate is the rate of interest for the same type of bonds prevailing in the market. There may be a difference between the contract rate and market rate of interest on bonds. Due to the difference, the bonds are issued at premium or discount.
The Market
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Chapter 7 Solutions
Principles of Financial Accounting (Elon University)
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