Mgmt_200_Spring_2008_Chap_10_Long-term_bonds(3,20)

Mgmt_200_Spring_2008_Chap_10_Long-term_bonds(3,20) - Bonds...

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Bonds Payable Characteristics Control Interest is tax deductible Leverage effect Default risk Bond Indenture (Terms: Callable, convertible) Bond covenants (Restrictions on dividends, accounting ratios, etc)
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Bonds Payable Terminology Bond Principal (par value, face amount, maturity value) Coupon rate (Stated rate, nominal rate, stated rate) Bond price: 100 - sells at par, less than 100 – sells at a discount, greater than 100 – sells at a premium Market rate (yield-to-maturity) Market rate at the date of issuance is the effective-interest rate (accounting rate)
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E10-2: Interpreting Information Reported in the Business Press As this book was being written, the business press reported the Explain the meaning of the reported information. If you bought AT&T bonds with $10,000 face value, how much would you pay (based on the preceding information reported)? Assume that the bonds were originally sold at par. What impact would the decline in value have on the financial statements for AT&T?
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Wall Street Journal March 8-9, 2008 “A How-To Guide For Now-Popular Municipal Bonds” www.InvestingInBonds.com
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The price of the bonds is the present value of the bond cash flows discounted at the market rate of interest (required rate of return or yield). The bond cash flows are the face value to be received at maturity and the interest payments (face value x coupon rate). If coupon rate equals the market rate then the bond sells at par (price =100). If the coupon rate is less than the market rate then the bond sells at a discount (price less than 100). If the coupon rate is more than the market rate then the
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This note was uploaded on 11/22/2009 for the course MGMT 200 taught by Professor Greigg during the Spring '08 term at Purdue University-West Lafayette.

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Mgmt_200_Spring_2008_Chap_10_Long-term_bonds(3,20) - Bonds...

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