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Lecture

Chapter 8 Notes - Class.docx

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Department
Accounting
Course
ACTG 1P12
Professor
Norman Chasse
Semester
Winter

Description
Chapter 8Financing a Business with DebtBonds A contract or written agreement that allows a company to borrow a specific amount of money at specified terms o Interest o Principal o Repayment datesCan be exchanged on the open marketUnsecured bonds debenturesSerial bondsmatures periodically over timeTerm bonds mature all at the same time Key TerminologyFace value o refers to the actual principle amount of the bond ie amount to be repaid maturityStated Rate or Coupon Rate or Contract Rate or Face Rate o Rate of interest paid on the bond to the bondholders ie sets the cash payment o PYNTFace Value x Stated RateMarket Rateo Rate demanded by investors to lend money to the company given similar risks terms etc o Sets the effective rate or discount rate used to determine the Net Present Value of future payments reccl paid from the bondPrice of the Bonds o Present value of future payments discounted at the market rateWhen the price of the bond is equal to its face valuesold at par When the price of the bond is greater than the face valuesold at premium When the price of the bond is less than the face valuesold at discount
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