MGT 11A Chapter Notes - Chapter 10: Call Option, Bearer Bond, Accrued Interest
Document Summary
Carrying value of bonds at maturity always equals par value. Retirement of these bonds at maturity, assuming interest is already paid and recorded. Issuers sometimes retire some or all of their bonds before maturity. If interest rates decline, an issuer may want to replace high-interest-paying bonds with new low-interest bonds. 2 common ways to retire bonds before maturity: Issuer can reserve the right to retire bonds early by issuing callable bonds. Callable bonds give the issuer an option to call the bonds before they mature by paying the par value plus a call premium. Issuer can repurchase them from bondholders at their current price. Whether bonds are called or purchased, the issuer is likely to pay a price different from their carrying value. Issuer records a difference between the bonds" carrying value and the amount paid as a gain/loss. Ex: puma issued callable bonds with a par value of ,000.
