ACC 311 Chapter 10: Chapter 10 Notes

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University of Texas at Austin
ACC 311
Gretchen Charrier

Chapter 10: Reporting and Interpreting Bond Securities ● Bond Principal (Par Value, Face Value, Maturity Value): The amount a company pays bondholders on the maturity date and the amount used to compute the bond's periodic cash interest payments ● Coupon Rate (Stated Rate, Contract Rate, Nominal Rate): The interest rate specified on a bond, and the rate used to compute the bond's periodic cash interest payment ● Convertible Bonds: Bonds that may be converted to other securities of the issuer (usually common stock) ● Debentures: An unsecured bond; no assets are specifically pledged to guarantee repayment ● Bond Certificate: The document investors receive when they purchase bond securities ○ Maturity date ○ Coupon rate ○ Interest dates ● Trustee: An independent party appointed to represent the bondholders ● Default Risk: Risk that a bond issuer will not be able to meet the requirements specified in the prospectus ● Order of risk of bonds (lowest to highest) ○ Highest investment grade ○ Lowest investment grade ○ Highest junk bond grade ○ In default or unrated ● Market Interest Rate (Yield, Effective Interest Rate): The rate of return investors demand for a company's bonds on the date the bonds are issued, and the rate used to compute the bond's interest expense each period ● Bond Premium: The difference between the selling price of a bond and the bond's face value when a bond is sold for more than p
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