Bonds and Notes

These flashcards cover key concepts related to bonds and notes, suitable for exam preparation.

Bonds

Debt securities issued by corporations and governmental entities to borrow large amounts of money.

Face Value

The amount of money a bond will be worth at its maturity, also known as par value.

Maturity Date

The date on which the principal amount of a bond is to be paid.

Stated Interest Rate

The interest rate that is stated on a bond.

Callable Bonds

Bonds that may be retired and repaid at any time at the option of the issuer.

Debenture Bonds

Bonds that are not secured with the pledge of a specific asset.

Convertible Bonds

Bonds that may be exchanged for other securities of the issuer, usually shares of common stock.

Discount on Bonds Payable

A contra-liability account that appears in the liability section of the balance sheet.

Premium on Bonds Payable

An account that appears in the liability section of the balance sheet indicating a decrease in interest expense.

Effective-Interest Method

A method of computing interest expense as a function of the carrying value of the bonds.

Contractual Requirement

A requirement to make interest and principal payments as per the bond agreement.

Tax-Deductible

Interest expense that can be deducted from taxable income.

Interest Payment Dates

Dates when interest payments on bonds are made, typically semiannually.

Market Interest Rate

The interest rate determined by the market for bonds similar to those being issued.

Long-term Liabilities

Obligations that are due beyond one year.

Interest Expense

The cost incurred by an entity for borrowed funds.

Cash

An asset account representing liquid funds available.

Bonds Payable

A liability account indicating the total amount owed to bondholders.

Market Rate

The current interest rate available in the market for similar securities.

Bankruptcy Risk

The risk that an organization will be unable to meet its debt obligations.

Investment Exchange

An established marketplace where bonds can be traded.

Principal Payment

The repayment of the original amount borrowed in a bond.

Credit Ratings

Assessments of the creditworthiness of an issuer of bonds.

Interest Payment

Payments made on bonds to bondholders, typically on specified dates.

Annuity

A series of equal payments made at regular intervals.

Present Value Factors

Factors used to calculate the present value of future cash flows.

Default Risk

The risk that the issuer will be unable to make interest or principal payments.

Investment Grade Bonds

Bonds rated as relatively low risk of default.

Non-investment Grade Bonds

Bonds rated higher risk, often referred to as junk bonds.

Amortization of Premium

The gradual reduction of the premium on bonds over time.

Amortization of Discount

The gradual expense recognition of bond discounts over time.

Cash Flow Impact

The effect of bond obligations on the liquidity of a company.

Bank Loan vs. Bonds

Bonds do not dilute ownership and control compared to a bank loan.

Calculating Interest Expense

Interest expense equals carrying value of bonds multiplied by the market interest rate.

Security Detail

Details related to the specific security backing a bond.

Issuer

The entity that issues a bond for the purpose of raising funds.

Payment Dates

The scheduled dates on which interest payments are made to bondholders.

Bleach Risk

The risk associated with bond securities that may negatively impact liquidity.

Market Fluctuations

Variance in market rates affecting bond prices.

Book Value

The value of an asset according to its balance sheet account.

Rate of Return

The gain or loss made on an investment.

Investor

An entity that allocates funds with the expectation of a financial return.

Conditions of Bonds

Terms that define the characteristics and obligations of bond issuance.

Leverage Ratio

A financial ratio that measures the extent of a company's debt.

Semi-annual Payments

Interest payments made to bondholders twice a year.

Interest Rate Risk

The risk of loss due to fluctuations in interest rates.

Journal Entry

The record of financial transactions made in accounting books.

Debt-Equity Ratio

A measure of a company's financial leverage calculated by dividing total liabilities by shareholders' equity.

Investor Confidence

The level of trust investors have in a company's ability to generate returns.

Annuity Due

An annuity for which payments are made at the beginning of each period.

Debt Service

The cash required to cover the repayment of principal and interest on debt.

Fall Below Investment Grade

A downgrade of a bond's credit status indicating higher risk.

Capital Structure

The mix of different forms of capitalization used by a company.