AFM101 Chapter 11: chapter 11

• School: University of Waterloo
• Department: Accounting & Financial Management
• Course: AFM101
• Professor: Jiye Li

Document Summary

Bonds may be secured or unsecured (debenture bonds) Note payable written promise to pay stated sum of money at one or more specified future dates (maturity date(s)) Bond principal (aka par value and face amount) = amount payable at maturity date. Stated rate rate of interest per period specified in bond contract. Debenture unsecured bond, no assets pledged to guarantee repayment. Callable bonds may be called in for early retirement by issuer. Convertible bonds bonds may be converted to common shares. Retractable bonds may be turned in for early retirement at option of bondholder (happens when market interest rate increases) Indenture bond contract that specifies the legal provisions of bond issue (ex. maturity date, interest rate, interest payment dates, and other privileges: may also include covenants. Managers prefer less restrictive, while creditors prefer more (since reduced chance of no payment) bond price. Bond certificate bond document that each bondholder receives.