Ch10 - Bonds

Ch10 - Bonds - 10-1 Chapter 10 Bonds Characteristics of...

Info iconThis preview shows pages 1–9. Sign up to view the full content.

View Full Document Right Arrow Icon
Chapter 10 – Bonds Characteristics of bonds Bonds issued at par Bonds issued at a discount or premium Straight line amortization Early retirement of bonds 10-1
Background image of page 1

Info iconThis preview has intentionally blurred sections. Sign up to view the full version.

View Full DocumentRight Arrow Icon
Characteristics of bonds 10-2
Background image of page 2
1. Bonds represent a long term borrowing of large amounts of money. 2. Issuers: corporations, universities, government agencies. 3. Bond indenture – specifies the legal provisions of the bonds (e.g. maintain a current ratio of 1.50). 4. When issuing bonds, potential buyers of the bonds are given a prospectus , which describes the company, the bonds, and how the proceeds of the bonds will be used. Characteristics of Bonds 10-3
Background image of page 3

Info iconThis preview has intentionally blurred sections. Sign up to view the full version.

View Full DocumentRight Arrow Icon
Example: 10-4 Unsecured debentures and notes ($mil): 9.750% due Apr. 1, 2012 349 5.125% due Feb. 15, 2013 598 8.750% due Aug. 15, 2021 398 7.950% due Aug. 15, 2024 300 7.250% due Jun. 15, 2025 248 8.750% due Sep. 15, 2031 249 8.625% due Nov. 15, 2031 173 6.125% due Feb. 15, 2033 393 6.625% due Feb. 15, 2038 300 7.500% due Aug. 15, 2042 100 7.875% due Apr. 15, 2043 173 Read as: 6.125%, $1,000 bonds that mature in 2033. Currently yield a 5.736% return. On this day, price was 105% of face value, or $1,050. Quote 10-K disclosure:
Background image of page 4
Bond Certificate 10-5
Background image of page 5

Info iconThis preview has intentionally blurred sections. Sign up to view the full version.

View Full DocumentRight Arrow Icon
Bond Certificate Face Value $1,000 Interest 5% Payable at 12/31 Maturity Date 12/31/12 Bond Date 1/1/08 Maturity or Par Value, Principal ($1,000) Stated interest rate or coupon Bond Date (not issue date) Date bond will be repaid Interest Payment Date 10-6
Background image of page 6
1) Secured bonds – Backed by specific assets (e.g. a building in event of default). 2) Debenture bonds (unsecured) – Backed only be general creditworthiness of issuer. Types of Bonds 1) Convertible convert the bonds into common stock at bondholder’s option. 2) Callable – subject to call and retirement at a stated dollar amount prior to maturity at the option of the issuer. 10-7
Background image of page 7

Info iconThis preview has intentionally blurred sections. Sign up to view the full version.

View Full DocumentRight Arrow Icon
Bonds are debt , not equity, so the ownership and control of the company are not diluted. Interest expense is tax-deductible . The low interest rates on bonds allow for positive financial leverage . Bonds can be traded on established
Background image of page 8
Image of page 9
This is the end of the preview. Sign up to access the rest of the document.

Page1 / 40

Ch10 - Bonds - 10-1 Chapter 10 Bonds Characteristics of...

This preview shows document pages 1 - 9. Sign up to view the full document.

View Full Document Right Arrow Icon
Ask a homework question - tutors are online