ACCT 001 Lecture Notes - Lecture 31: Credit Risk, N60 Road (Ireland)

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pearjellyfish736

23 Dec 2020

School

College of The Sequoias

Department

Accounting (ACCT)

Course

ACCT 001

Professor

skaff

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Document Summary

It is the coupon rate makes the bonds different. Coupon rate the fixed rate of interest paid by a bond: do not confuse with market interest rate on the bond (another name, yield to maturity (ytm), that is the rate of return required by bond holders) . In the past, bonds had coupons attached (bearer bonds), today they are registered . All but zero-coupon issues pay interest, called coupon payments. Annual coupon payments= coupon rate * par value. If a bond has an 8 percent coupon and a par value of 1,000, it pays annual interest of (1,000 * 0. 08) = per year, 80/2=40 per period (if semiannually). Sum of present value of all future expected cash flows. Default risk: risk that issuer will not make interest or principal payments. For a bond, all future expected cash flows are those coupon payments, and the final face value (par value).

Related Questions

Even though most corporate bonds in the United States make coupon payments semiannually, bonds issued elsewhere often have annual coupon payments. Suppose a German company issues a bond with a par value of â¬1,000, 20 years to maturity, and a coupon rate of 6.6 percent paid annually.

If the yield to maturity is 7.7 percent, what is the current price of the bond?

goldguinea-pig340

Assume that a company issues a bond at 113 having a face value of $2,000 and a coupon interest rate of 9%. The bond pays interest annually, has a five-year maturity time frame, and bonds of similar risk are currently paying interest rates of 6%. The bond's issue price would be ????

$, it would make an annual interest payment on the bond in the amount of ???$

, and at the end of five years would pay back the principal of $???

. The total premium on the bond is $???

. Because bonds issued at a premium result in the company receiving more money up front, the bonds are actually costing the company less than just the periodic interest payments. For this reason, total interest expense equals the total interest paid over the life of the bond less the total premium on the bond. Total interest expense on this bond is ???

ceruleanhamster645

Hillside issues $1,800,000 of 7%, 15-year bonds dated January 1,2015, that pay interest semiannually on June 30 and December 31.The bonds are issued at a price of $1,555,401.

Required:
1.	Prepare the January 1, 2015, journal entry to record the bondsâissuance.

2(a) For each semiannual period, complete thetable below to calculate the cash payment.

Par (maturity) value		Annual Rate		Year		Semiannual cash interestpayment
					=

2(b) For each semiannual period, complete thetable below to calculate the straight-line discountamortization.

Par (maturity) value		Bonds price		Discount on Bonds Payable		Semiannual periods		Straight-line discountamortization
			=				=

2(c) For each semiannual period, complete thetable below to calculate the bond interest expense

Semiannual cash payment		Discount amortization		Bond interest expense
			=

3. Complete the below table to calculate the total bond interestexpense to be recognized over the bonds' life.

Total bond interest expenseover life of bonds:
Amount repaid:
	payments of
Par value at maturity
Total repaid
Less amount borrowed
Total bond interestexpense

4 Prepare the first two years of anamortization table using the straight-line method.

Semiannual Period-End	Unamortized Discount	Carrying Value
01/01/2013
06/30/2013
12/31/2013
06/30/2014
12/31/2014

5 Prepare the journal entries to record thefirst two interest payments.

silverhyena646

ACCT 001 Lecture Notes - Lecture 31: Credit Risk, N60 Road (Ireland)

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