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36 Cards in this Set

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Bearer bond
A bond that is payable to the bearer or person wh o has physical possession of the bond.
Bond
A long-term debt instrument issued by corporations to raise money from the public.
Bond certificate
The note given to bondholders.
Bond indenture
The bond contract
Bond issue
A group of bonds.
Callable bond
A bond that gives t he company issuing the bond thre right to buy it back before the maturity date at a specified price.
Capital lease
A lease in which a company acquires such a substantial interest in th e leased property that the lessee company owns the asset.
Carrying value of debt
Remaining liability on the pro forma balance sheet.
Collateral
An asset or group of assets specifially named in a debt agreement to which the creditor has claim if the borrower fails to comply with the terms of the note.
Convertible bond
A bond feature that allows bondholders to exchange the bonds for common or preferred stock.
Covenants
Restrictions that lenders place on the borrowing company to protect the lender's interest.
Debenture bonds
Unsecured bond; bonds with no specific assets pledged as collateral.
Discount on a note
The excess of the face value of a note over its present value (cash proceeds).
Face rate on the note
Used to determine the cash interest the borrower pays.
Face value of the note
The amount the borrower will repay the lender for principal.
Holder of the note
The lender
Lease
An agreement to convey the use of a tangible asset from one party to another in return for rental payments.
Lump-sum payment note
A debt instrument that contains a promise to pay a specific amount of money at the end of a specified period of time.
Maker of the note
The borrower.
Market, or effective, interest rate
The actual interest rate charged on a note's proceeds.
Mortgage
A long-term note secured with real estate, such as land or buildings, as collateral.
Mortgage bond
A bond that is secured with real estate.
Operating lease
A rental agreement for a period of time substantially shorter tthan the economic life of the leased asset.
Periodic payment and lump-sum note
A debt instrument that combines periodic payments and a final lump-sum payment.
Periodic payment note
A debt instrument that contains a promise to make a series of equal payments consisting of both interest and principal at equal time intervals over a specified time period.
Premium on a note
The amount that the present value (cash proceeds)of a note exceeds its face value of the note.
Proceeds of the note
The amount of cash raised from issuance of a note.
Registered bonds
Bonds that are numbered and made payable in the name of the bonholder.
Secured bond
A bond that has some part of the issuing corporation's assets serving as security for the loan.
Serial bond
A bond issue that has specified portions of the bond issue coming due periodically over the life of the bond issue.
Subordinated bonds
Unsecured bonds whose rights to repayment are ranked after, or subordinated to, some other person or group of creditors.
Unsecured bond
A bond that does not have any specific assets pledged as security against its repayment.
Key points for Periodic Payment (installment) Notes:
The initial CV = proceeds = PV = Face value 2) The Face rate of interest = market rate of interest. 3) The futre value of the note is zero because we are paying back the face value of the note over its life. 4) Interest expense for a period: CV x market rate x 1/c. 5) Payments are for interest and principal (face value) each period. 6) the CV decreases over time as the principal is paid off.
Key points for Lump-sum (noninterest-bearing) notes:
The initial CV = proceeds = PV. 2) There is no face rate of interest, only a market rate. 3) There are no periodic payments. 4) The future value = face value of the note. 5) Interest expense for a period: CV x market rate x 1/c. 6) The CV increases over time as interest expense (not paid) is added to the CV.
Key points for Periodic and Lump-sum payment (Bonds) notes when market rate > face rate:
Initial CV = proceeds = present value. 2) The payment (ANN) = face value x face rate x 1/c. 3) Face value of the note = future value. 4) Interest expense: CV x market rate x1/c. 5) The difference between the interest expense on the income statement and the interest payment on the statement of cash flows is the adjustment to the CV on the balance sheet. 6) The CV increases as the adjustment is added to CV.
Key points for Perriodic and lump-sum payment (bonds) notes when market rate < face rate.
Initial CV = proceeds = present value. 2) The payment (ANN) = face value x face rate x 1/c. 3) Face value of the note = future value. 4) Interest expense for a period: CV x market rate x 1/c. 5) The difference between the interest expense on income statement and interest payment on cash flows is the adjustment to the CV on balance sheet. 6) The CV decreases as adjustment is deducted from CV.