Bond proceeds pv of face amount pv of interestcash

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Unformatted text preview: Total number of II. Timeline for a bond problem: periods = # years x # i=effective rate interest payments per per period year Cash ANNUITY payments= face amount x stated rate per period Principal (over the life of the bond) à༎ FOR COUPON BONDS ONLY (SINGLE SUM) III. Use tables or calculator to calculate discount factors for each of cash flow amounts (coupon payments à༎ annuity table; face amount à༎ single sum table) IV. Bond proceeds = PV of face amount + PV of interest/cash payments V. Coupon bonds vs. zero- coupon bonds a. Differences in the cash flows and accounting for each type VI. Bond terminology a. Discount bonds – need to increase the net carrying value of the bond over its life i. Stated rate < Effective rate ii. Proceeds < Principal b. Premium bonds – need to decrease the net carrying value of the bond over its life i. Stated rate > Effective rate ii. Proceeds > Principal PREPARED BY: SARA TOYNBEE 2 c. Stated interest rate – used to specify the cash payments made to bondholders d. Effective interest rate – used to find the discount factor to calculate the present value and the interest rate in the amortization table VII. Amortization schedule – remember you can get a lot of information from the amortization...
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This document was uploaded on 02/09/2014.

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