Issuance of bonds (at a premium or discount)

 bet 1/12 Sana 10.01.2019 Hajmi 449 b. • Troubled Debt Restructuring • Present value concept:

• Present value of \$1 is the value today of \$1 to be received at some future date, given a specific interest rate.
• Example:

• 1. What is the present value of \$100 to be received a year from now given an annual market interest rate of 10%?
• P.V.  (1+10%) = \$100

• P.V. = \$100/1.1
• = \$100  0.9091
• = \$90.91 • P.V  (1+10%)  (1+10%) = \$100

• P.V  (1+10%)2 = \$100
• P.V.  1.21 = \$100
• P.V. = \$100 / 1.21
• = \$100  0.8264
• = \$82.64 • Receiving (or paying)a constant amount of money at the end of each period (equal time internal) for a given number of periods • Total 3.7907 \$379.07 • The P.V. of this annuity can be obtained from an annuity table under 10%, 5 periods. • 2. What is the P.V. of \$300 annuity receiving every 6 months for the following 30 months, starting 6 months from now ? The annual interest rate is 12%. • The corporation will receive cash when bonds are issued. • Also, the bond issuers will pay interests to the bondholders periodically (i.e., semi-annually). • Short-Term Liability: if bonds mature in lessthan one year • Bond Indenture is an agreement between the bond issuer and investors stating the following:

• Interest rate of bonds;
• Interest Payment dates;
• The maturity date of bonds;
• The type of bonds: callable, convertible,..
• The indenture is held by a trustee appointed by the issuing firm to represent the rights of the bondholders. • Non-financial covenant: requiring the disclosure of certain financial information. • 2. Print bond certificates and write indenture (to set the terms of bond issue such as the stated interest rate, the interest payment date and the maturity date…)

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