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55 - Bond Premium and Discount Premium • Issue price...

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Bond Terms Principal Amount borrowed; usually in $1000 units Also called face value, or par value Maturity Date Date bond is due; 5, 10 or 20 year terms are common Interest Company must pay bondholders interest in regular intervals over the term of the bond Underwriter A securities firm that purchases the bond issue and resells to clients Types of Bonds Term bonds All bonds in an issue mature at one specific date Serial bonds Bonds in the issue mature installments Secured (mortgage) bonds Bondholders have right to company assets if interest and principal is not paid Unsecured (debenture) bonds Backed only by the good faith of the issuing company
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Unformatted text preview: Bond Premium and Discount Premium • Issue price above face value • Market rate of interest is less than stated rate of interest Discount • Issue price below face value • Market rate of interest is greater than stated rate of interest Market interest rate = rate investors demand for loaning money; changes frequently Stated interest rate = printed on the bond certificate; determines amount of cash interest; remains constant Account for bonds payable Issuing Bonds Payable at Face Value Suppose a company issues $100,000 of 8% bonds payable that mature in ten years; the bonds pay interest semi-annually...
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