Bond Fundamentals and Valuation

These flashcards cover essential vocabulary related to bond fundamentals, pricing, and valuation principles.

Long-Term Liability

Debt incurred by a company that is due in more than one year.

Bondholders

Entities that purchase and own bonds.

Principal

The face value or par value of the bond.

Maturity Date

The date on which the bond's principal is repaid.

Coupon Rate

The stated interest rate on a bond that determines the interest payments.

Market Interest Rate

The rate that bondholders demand for loaning their money, which can differ from the coupon rate.

Bond Premium

When a bond is sold for more than its face value.

Bond Discount

When a bond is sold for less than its face value.

Present Value

The current value of a future sum of money or stream of cash flows given a specified rate of return.

Future Value

The amount of money to which an investment will grow over time at a specified interest rate.

Effective Interest Rate

The actual interest rate that an investor earns or pays after including any fees or costs.

Amortization

The process of spreading out the bond discount or premium over the life of the bond.

Callable Bonds

Bonds that can be redeemed by the issuer prior to their maturity.

Conversion Option

The feature that allows bondholders to convert their bonds into a specified number of shares of stock.

Time-Interest-Earned Ratio

A measure of a company's ability to meet its debt obligations, calculated as Operating Income divided by Interest Expense.

Coupon Payment

SIR * Face Value

Discount on Bonds Payable

Face value- Issue price

Present amount

Future Value * Present value $1

Interest payment

Face amount * Stated Interest Rate

Interest Expense

Carrying value* Market Interest Rate

Maturity value

Face amount + All interest (Face amount* Interest*. Months/12