Seminar Unit 8 - Unit 8 Seminar Click to edit Master...

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Click to edit Master subtitle style 5/20/10 Unit 8 Seminar 11
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5/20/10 Unit 8 Seminar Objectives: Ø Discuss Problem 14-2A, textbook page 650 Ø Discuss Problem 14-3A, textbook page 22
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5/20/10 Bond A bond is simply a form of an interest-bearing note. Like a note, a bond requires periodic interest payments, and the face amount must be repaid at the maturity date. 33
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5/20/10 Bond Characteristics and Terminology The underlying contract between the company issuing bonds and the bondholders is called a bond indenture or trust indenture . 44
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5/20/10 Usually, the face value of each bond, called the principal , is $1,000 or a multiple of $1,000. Interest on bonds may be payable annually, semiannually, or quarterly. Most pay interest semiannually. Bond Characteristics and Terminology 55
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5/20/10 The contract or stated rate of a bond is the interest rate on the bond and will be used to calculate the cash payment of interest. Issuing Bonds 66
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5/20/10 The market or effective rate of interest is determined by transactions between buyers and sellers of similar bonds. The market rate of interest is affected by a variety of factors, including investors’ expectations of current and future economic conditions. Proceeds from Issuing Bonds 77
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5/20/10 MARKET RATE = CONTRACT RATE Selling price of bond = $1,000 If the contract rate equals the market rate of interest, the bonds will sell at their face amount. 88
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5/20/10 MARKET RATE > CONTRACT RATE - Discount If the market rate is higher than the contract rate, the bonds will sell at a discount . Selling price of bond < $1,000 99
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5/20/10 MARKET < CONTRACT RATE + Premium If the market rate is lower than the contract rate, the bonds will sell at a premium . Selling price of bond > $1,000 1010
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Click to edit Master subtitle style 5/20/10 Turn to page 650 Problem 14- 2A 1111
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5/20/10 1212 On July 1, 2010 Brower Industries Inc issued $32,000,000 of 10 year, 12% bond at an effective interest rate 13%, receiving cash of $30,237,139. Interest on the bonds is payable semiannually on December 31 and June 30. The fiscal year of the company is the calendar year.
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5/20/10 1313 On July 1, 2010 Brower Industries Inc issued $32,000,000 of 10 year, 12% bond at an effective interest rate 13%, receiving cash of $30,237,139. Interest on the bonds is payable semiannually on December 31 and June 30. The fiscal year of the company is the calendar year.
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5/20/10 1414 Recap Information: Ø $32,000,000 Face Value of the Bonds Ø 10 years bond term Ø 12% contract rate (rate bond will pay interest) Ø 13% effective rate or market rate
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Seminar Unit 8 - Unit 8 Seminar Click to edit Master...

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