Understanding Bond Types and Pricing
40 Questions
3 Views

Choose a study mode

Play Quiz
Study Flashcards
Spaced Repetition

Podcast

Play an AI-generated podcast conversation about this lesson

Questions and Answers

Bonds that are secured by real estate are termed?

  • serial bonds
  • mortgage bonds (correct)
  • debentures
  • bearer bonds
  • Bonds issued against the general credit of the borrower are called?

  • mortgage bonds
  • sinking fund bonds
  • callable bonds
  • debenture bonds (correct)
  • Bonds that may be exchanged for ordinary shares at the option of the bondholders are called?

  • convertible bonds (correct)
  • callable bonds
  • share bonds
  • options
  • Bonds that are subject to retirement at a stated dollar amount prior to maturity at the option of the issuer are called?

    <p>callable bonds</p> Signup and view all the answers

    Bonds that have specific assets of the issuer pledged as collateral are?

    <p>secured bonds</p> Signup and view all the answers

    A bond secured by specific assets set aside to redeem the bonds is called?

    <p>sinking fund bond</p> Signup and view all the answers

    The interest rate investors demand for loaning funds is the?

    <p>market interest rate</p> Signup and view all the answers

    Companies with good credit ratings use ___________________ bonds extensively?

    <p>debenture bonds</p> Signup and view all the answers

    What is the selling price of a bond with a face value of HK $200,000 and a quoted price of 102⅛?

    <p>HK $204,250</p> Signup and view all the answers

    If a bond has a face value of €1,000 and a quoted price of 98, what amount is it selling for?

    <p>€980</p> Signup and view all the answers

    When the market interest rate is higher than the contractual interest rate, how will the bonds sell?

    <p>At a discount</p> Signup and view all the answers

    What will happen to the total cost of borrowing if bonds are issued at a discount?

    <p>It will increase</p> Signup and view all the answers

    A €10,000, 6%, 10-year bond pays interest annually and the market interest rate is 5%. How will this bond sell?

    <p>Greater than face value</p> Signup and view all the answers

    What is the gain on redemption for a bond with a carrying value of HK $590,000 and a redemption price of HK $600,000?

    <p>HK $2,000</p> Signup and view all the answers

    If the face value of a bond is HK $200,000 and the bonds are sold at a premium, how does it affect the overall borrowing cost?

    <p>Decreases the overall cost</p> Signup and view all the answers

    The selling price of a €10,000, 5-year bond will be less than €10,000 if:

    <p>The contractual interest rate is less than the market interest rate</p> Signup and view all the answers

    What type of financial outcome is realized when bonds are redeemed at a higher price than their carrying value?

    <p>Gain on bond redemption</p> Signup and view all the answers

    What is the correct method to calculate the gain or loss on bond redemption?

    <p>Carrying value minus Redemption price</p> Signup and view all the answers

    What loss would Brooks Company report on its 2020 income statement after redeeming the bonds?

    <p>€11,200 loss</p> Signup and view all the answers

    If Choe Company redeems its bonds at 101, what is the resulting gain?

    <p>HK $4,600 gain</p> Signup and view all the answers

    What is the cash amount Lane would pay its bondholders if the bonds are retired at 103?

    <p>$820,910</p> Signup and view all the answers

    How is the carrying value of bonds typically calculated?

    <p>Face Value plus Unamortized Premium</p> Signup and view all the answers

    What does a loss on bond redemption indicate?

    <p>Bonds were sold below carrying value</p> Signup and view all the answers

    What factor influences the gain or loss on bond redemption?

    <p>Carrying value and redemption price</p> Signup and view all the answers

    What is the redemption loss incurred by Robin Corporation when retiring its bonds?

    <p>£2,040</p> Signup and view all the answers

    What happens to the principal balance of a long-term note payable over time?

    <p>It decreases each period.</p> Signup and view all the answers

    How are mortgage notes payable classified in the statement of financial position?

    <p>As both current and noncurrent liabilities.</p> Signup and view all the answers

    What component of an installment payment increases over the term of a mortgage note payable?

    <p>Portion allocated to payment of principal.</p> Signup and view all the answers

    What is the process to determine the total amount payable when redeeming bonds at a premium?

    <p>Face value multiplied by selling price.</p> Signup and view all the answers

    Which financial statement section reports liabilities like mortgage notes payable?

    <p>Statement of financial position.</p> Signup and view all the answers

    What effect does the issuance of bonds at a premium have on loss during redemption?

    <p>It diminishes the overall loss.</p> Signup and view all the answers

    What is included in the interest expense of each installment payment for a fixed interest rate mortgage?

    <p>It decreases over the term.</p> Signup and view all the answers

    What is the total amount of noncurrent liabilities reported for Otam Corp. at the end of 2020?

    <p>€2,085,000</p> Signup and view all the answers

    How is the debt to assets ratio for Barker Co. calculated?

    <p>Total Liabilities divided by Total Assets</p> Signup and view all the answers

    What signifies a lease term of less than one year on the statement of financial position?

    <p>Current liability portion of the lease liability</p> Signup and view all the answers

    Which statement is true regarding the recording of leases?

    <p>Lessee records a lease liability and an asset for all leases.</p> Signup and view all the answers

    If Otam Corp. has €1,650,000 in Bonds Payable, what is the primary component of its noncurrent liabilities?

    <p>Bonds Payable</p> Signup and view all the answers

    Which amount corresponds to the current liabilities of Barker Co.?

    <p>£40 million</p> Signup and view all the answers

    What is the correct total of current and noncurrent liabilities for Otam Corp. based on the provided information?

    <p>€2,085,000</p> Signup and view all the answers

    To calculate the debt to assets ratio, which values are required?

    <p>Total Liabilities and Total Assets</p> Signup and view all the answers

    Study Notes

    Bond Types

    • Bonds secured by real estate are called mortgage bonds.
    • Bonds issued against the general credit of the borrower are called debenture bonds.
    • Bonds that can be exchanged for ordinary shares at the bondholder's option are called convertible bonds.
    • Bonds that can be retired at a stated dollar amount before maturity at the issuer's option are called callable bonds.
    • Bonds with specific assets pledged as collateral are called secured bonds.
    • Bonds secured by specific assets set aside to redeem the bonds are called sinking fund bonds.

    Bond Pricing

    • The interest rate investors demand for loaning funds is the market interest rate.
    • Bonds sell at a discount when the market interest rate is greater than the contractual interest rate.
    • The total cost of borrowing is increased when bonds are issued at a discount.
    • Bonds sell at a premium when the market interest rate is less than the contractual interest rate.

    Bond Redemption

    • Bond redemption occurs when a company buys back its bonds before maturity.
    • A gain on bond redemption occurs when the carrying value of the bond is less than the redemption price.
    • A loss on bond redemption occurs when the carrying value of the bond is greater than the redemption price.

    Notes Payable

    • Long-term notes payable are reported as both current and noncurrent liabilities.
    • The portion of a note payable expected to be paid in the next year is reported as a current liability.
    • Each installment payment on a mortgage note payable includes interest and a payment on the principal.
    • With each installment payment, the portion allocated to interest expense decreases and the portion allocated to principal increases.

    Leverage and Debt Ratios

    • Companies use leverage to increase their return on equity.
    • The debt to assets ratio is calculated by dividing total liabilities by total assets.

    Lease Accounting

    • The appearance of a Leased Liability account on the statement of financial position indicates a lease term of more than one year.
    • The portion of a lease liability expected to be paid in the next year is reported as a current liability.

    Financial Statement Presentation

    • Noncurrent liabilities are reported on the statement of financial position after current liabilities.
    • Current liabilities are obligations that are expected to be paid within one year.

    Studying That Suits You

    Use AI to generate personalized quizzes and flashcards to suit your learning preferences.

    Quiz Team

    Related Documents

    Description

    This quiz covers essential concepts related to bond types, including mortgage bonds, debenture bonds, and callable bonds. It also addresses bond pricing strategies, such as selling at a discount or premium. Test your knowledge on these fundamental aspects of finance.

    More Like This

    Types of Bonds and Their Features
    12 questions
    Key Chemical Compounds and Bond Types
    16 questions
    Municipal Bonds and Financing Overview
    40 questions
    Electronegativity and Bond Types Quiz
    15 questions
    Use Quizgecko on...
    Browser
    Browser