Chapter 10 - Reporting and interpreting bonds. This chapter describe the characteristics of bonds, report bonds payable and interest expense for bonds sold at par and analyze the times interest earned ratio, report bonds payable and interest expense for bonds sold at a discount, report bonds payable and interest expense for bonds sold at a premium, analyze the debt-to-equity ratio, report the early retirement of bonds. | Chapter 10 Reporting and interpreting Bonds McGraw-Hill/Irwin Copyright © 2014 by The McGraw-Hill Companies, Inc. All rights reserved. Chapter 10: Reporting and Interpreting Bonds Characteristics of Bonds Payable Two types of cash payment in the bond contract: 1. Principal. 2. Cash interest payments. Bond Terms Principal, par value and face value Contract, stated, or coupon rate of interest Market, yield, or effective-interest rate A bond certificate is the bond document that each bondholder receives. When a company issues its bonds, it specified two types of cash payment in the bond contract: Principal. This amount is usually a single payment that is made when the bond matures. It is also called the par value or face value. For most individual bonds, the par value is $1,000, but it can be any amount. Cash interest payments. These payments, which represent an annuity, are computed by multiplying the principal amount times the interest rate stated in the bond contract. This interest is called the contract, stated, or coupon rate of interest. The bond contract specifies whether the interest payments are made quarterly, semiannually, or annually. When you are asked to work problems in which interest payments are made more frequently than once a year, you must adjust both the periodic interest rate and the number of periods. For example, a $1,000 (face value) bond with an annual interest rate of 6 percent and a life of 10 years would pay interest of $30 ($1,000 × 6% × 1/2) for 20 periods (every six months for 10 years, or 10 × 2). Neither the issuing company nor the underwriter determines the price at which the bonds sell. Instead, the market determines the price using the present value concepts introduced in the last chapter. To determine the present value of the bond, you compute the present value of the principal (a single payment) and the present value of the interest payments (an annuity) and add the two amounts. Creditors demand a certain rate of interest to . | Chapter 10 Reporting and interpreting Bonds McGraw-Hill/Irwin Copyright © 2014 by The McGraw-Hill Companies, Inc. All rights reserved. Chapter 10: Reporting and Interpreting Bonds Characteristics of Bonds Payable Two types of cash payment in the bond contract: 1. Principal. 2. Cash interest payments. Bond Terms Principal, par value and face value Contract, stated, or coupon rate of interest Market, yield, or effective-interest rate A bond certificate is the bond document that each bondholder receives. When a company issues its bonds, it specified two types of cash payment in the bond contract: Principal. This amount is usually a single payment that is made when the bond matures. It is also called the par value or face value. For most individual bonds, the par value is $1,000, but it can be any amount. Cash interest payments. These payments, which represent an annuity, are computed by multiplying the principal amount times the interest rate stated in the bond contract. This interest is
