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18 Cards in this Set
- Front
- Back
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Bond
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Issuer's written promise to pay an amount identified as the par value of the bond with interest.
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Advantages of a bond
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1) Bonds do not affect owner control
2) Interest on bonds is tax deductible |
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Disadvantages of a bond
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Bonds require payment of both periodic interest and the par value at maturirty - not required by stocks.
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Bond indenture
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Contract that a corporation enters into with a bondholder.
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Principle
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Face value of the bond (same thing as par).
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Convertible bonds
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Bonds that may be exchanged for other securities, such as common stock.
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Callable bonds
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Bonds that a corporation reserves the right to redeem before their maturity date.
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Contract rate (coupon rate)
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The periodic interest that is expressed as a percentage of the face amount of the bond.
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Effective rate of interest
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Determined by transactions between buyers and sellers of similar bonds; rate that borrowers are willing to pay and lenders are willing to accept for a particular bond and its risk level.
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*Contract rate = market rate
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Bonds sell at their face amount
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*Contract rate < market rate
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Bonds sell at a discount
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*Contract rate > market rate
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Bonds sell at a premium
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$20,000
CR = 6% MR = 6% 15 years. This is an example of…. |
Contract rate = market rate: bonds sell at their face value.
Issuing a bond at par. |
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$10,000
CR = 6% MR = 12% 15 years. This is an example of…. |
Contract rate < market rate: bonds sell at a discount.
Nobody wants this bond so the seller has to offer a discount so someone will purchase the bond. |
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$30,000
CR = 12% MR = 6% 15 years. This is an example of…. |
Contract rate > market rate: bonds sell at a premium.
Opposite of a discount. Everyone would want this because you get more money back than you have to pay as a premium. Amortize the premium |
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Earnings per share
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Measures the income earned by each share of common stock.
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Statement of Cash Flow
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Reports all major cash receipts (inflows) and cash payments (outflows) during a period.
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What are the 3 different sections of Cash Flow?
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1) Operating
2) Investing 3) Financing |
