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- Fixed-income securities consist of debt instruments and preferred stock. Bonds are debt securities in which a borrower promises to pay a specified interest rate and principal at a future date. Which of the following types of bonds have the least default risk? Municipal bonds Corporate bonds Treasury bonds Based on the information given in the following statement, answer the questions that follow: In July 2009, Hungary successfully issued 1 billion euros in bonds. The transaction was managed by Citigroup. Who is the issuer of the bonds? Citigroup The Hungarian government Hungary Bank What type of bonds are these? Government bonds Corporate bonds Municipal bondsFrom page 9-2 of the VLN, what is the first thing you want to identify when approaching a bond problem? Group of answer choices A. Annual bond or semiannual bond B. Whether the market rate is different from the stated rate. C. The cash flows provided by the bond. D. The company's debt to equity ratio.Which of the following is FALSE regarding bonds? Long term bonds have greater interest rate risk than do short term bonds. A bond indenture describes the terms of the bond issue. Bonds represent ownership in the company. if interest rates in the market go up, the present value of existing bonds goes down. A bond issuer is legally required to make the interest payments and repay the par value at maturity. Previous Page Next Page Page 12 of 30
- ANSWER AS MANY QUESTIONS POSSIBLE THIS IS A STUDY GUIDE Ch 11 Bonds and LTL1. When will bonds sell at a premium and discount? 2. Calculate bond interest under SL method.3. Impact of amortization of bond premium/discount on interest expense.4. Give an example journal entry for amortization of bond premium/discount.5. What is the Gain/loss on redemption of bonds? How do you calculate?6. Understand method of calculating PV of future cash flows -specifically for a bond.7. Why are bonds a popular source of financing?8. Contract rate (market rate) is used for what calculation purpose?Ch 10 SE: Corporations1. What are Rights possessed by common stockholders?2. What are a journal entries for stock issuance, cash dividend, stock dividend?3. What is the calculation of dividends when cumulative preferred stock is outstanding?4. Journal entries for treasury stock, financial statement presentation. Gain/loss on reissue of treasury stock.5. Prior period adjustment - example of, accounting for?6.…The time value of money is used in calculating bond prices because: Group of answer choices A - The company might choose to repay the bonds prior to their maturity date B - Bond investors receive future payments and purchase bonds with current dollars C - The amount to be repaid at maturity will change as market rates change D - Cash interest payments to bondholders will change as market rates changeListed below are terms and definitions assoclated with bonds. Select the bond term that matches with the definitlon. Definitions Terms Allows the issuer to pay off the bonds early at a fixed price. Matures in installments. Secured only by the "full faith and credit" of the issuing corporation. Allows the investor to transfer each bond into shares of common stock. Money set aside to pay debts as they come due. a. b. C. d. е. f. Matures on a single date. 9. Supported by specific assets pledged as collateral by the issuer. h. Includes underwriting, legal, accounting, registration, and printing fees.
- he following information is about the spot rates on Treasury securities and BBB corporate bond: Spot 1 Year Spot 2 Year Spot 3 Year Treasury 3% 4.75% 5.5% BBB Corporate Debt 7.5% 9.15% 10.5% Question: What is the implied forward rates on one-year maturity BBB corporate debt to be delivered in year 3?For a standard U.S. Treasury bond, when are the following characteristics of the bond determined? The amounts of any interest payments. The dates of any interest payments. The bond's market yield. The bond's market price. The amount that the Treasury returns to the bondholder, when the bond matures. The price that the bondholder pays to the Treasury to acquire the bond. The maturity date. 1. 2. Fixed before the bonds are sold and does not change. Fixed when the bonds are sold and does not change. 3. Fluctuates continually.14. If bonds are redeemed on maturity date, any premium or discount * a. Is carried forward and written off in the same manner as that used prior to the maturity date. b. Should be used to calculate the O gain or loss resulting from the maturity of the bonds. c. Should be written off directly to a O bond retirement account as the bond will be redeemed. d. Will be fully amortized as its amortization period is designed to coincide with the life of the bond issue.
- 1. 2. What is meant by bond issue cost and how do we account for such bond? 3. How do we account for compound financial instruments? 4. What is the difference between convertible bonds and bonds with warrants? 5. What is the difference between the accounting for retirement of ordinary bonds and compound financial instruments?Examine the following bonds A) Corporate Bond - maturity 15.08.2025 - fixed coupon rate - semiannual payment - rating BB B) Reverse convertible bond- maturity 15.08.2025 - fixed coupon rate- semiannual payment- rating BB C) Equity linked bond - maturity 15.08.2025- fixed coupon rate - semiannual payment - rating B D) Convertible Bond maturity 15.08.2025 fixed coupon rate - semiannual payment - rating BB Which bond has the highest price, at the issue? Why? Explain also the difference between bond C and D regarding the priceTrue or false I. Floating/ variable rate bonds is one in which the interest payment changes with the market conditions. II. Junk or low rated bonds are rated BB or below.III. Eurobonds are bonds payable or denominated in the borrower’s currency, but sold outside the country of the borrower, usually by an international syndicate of investment bankers. IV. Treasury bonds carry the “full-faith-and-credit” backing of the government and investors consider them among the safest fixed-income investments in the world.