ACC 231 Lecture Notes - Lecture 17: Financial Institution, Accrued Interest, Promissory Note
ACC 231
Lecture 17
Exam Review
Bonds:
Bonds-Sometimes a firm (or government) needs to borrow more money than one financial
institution can loan. The firm will sell bonds to the public.
A promise to pay:
1)A sum of money at a specified maturity date
2)Periodic interest at a specified rate
In other words when a firm sells a bond they will pay a series of annuity payments and a lump
sum at the maturity date.
Types of bonds:
Convertible Bonds – Can be converted to stock in the company who issued the bond.
Callable Bond-The issuer may call or pay off the principal of the bond early at a specified price.
Secured Bonds- Have collateral backing the loan.
Unsecured Bonds (Debentures)- Do not have collateral backing the loan.
Serial Bonds-Bonds issued on the same date but mature at different dates
Term Bonds-Bonds issued on the same date and mature on the same date
Debt Ratio=(Total Liabilities)/(Total Assets)
● % of assets financed with debt
Interest Coverage Ratio = (Earnings before Interest & Taxes(EBIT))/(Interest Expense)
● Measures a company’s ability to pay its Interest Expense
Document Summary
Bonds-sometimes a firm (or government) needs to borrow more money than one financial institution can loan. The firm will sell bonds to the public. 1)a sum of money at a specified maturity date. In other words when a firm sells a bond they will pay a series of annuity payments and a lump sum at the maturity date. Convertible bonds can be converted to stock in the company who issued the bond. Callable bond-the issuer may call or pay off the principal of the bond early at a specified price. Unsecured bonds (debentures)- do not have collateral backing the loan. Serial bonds-bonds issued on the same date but mature at different dates. Term bonds-bonds issued on the same date and mature on the same date. Interest coverage ratio = (earnings before interest & taxes(ebit))/(interest expense) Measures a company"s ability to pay its interest expense. Long term notes payable: an example of a long-term note payable is a mortgage.