Issuance of bonds (at a premium or discount) Issuance of bonds (at a premium or discount) Issuance of bonds between interest payment dates Extinguishment of debt Convertible Bonds (including Induced Conversion) Longterm Notes Payable
Present value concept: 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
2. What is the present value of $100 to be received two years from now given an annual interest rate of 10%? 2. What is the present value of $100 to be received two years from now given an annual interest rate of 10%? 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 Receiving (or paying)a constant amount of money at the end of each period (equal time internal) for a given number of periods
1. Using the example above given a10% Interest rate: 1. Using the example above given a10% Interest rate: P.V. of the first $100 = $100 0.9091 = $90.91 P.V. of the second $100 = $100 0.8264 = $82.64 P.V. of the third $100 = $100 0.7513 = $75.13 P.V. of the fourth $100 = $100 0.6830 = $68.30 P.V. of the fifth $100 = $100 0.6209 = $62.09 Total 3.7907 $379.07
The P.V. of $100 annuity receiving every year for the following 5 years, starting a year from now => The P.V. of $100 annuity receiving every year for the following 5 years, starting a year from now => $100 * 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%. 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%.
Bonds are securities issued by a corporation to borrow money from the public (many lenders). Bonds are securities issued by a corporation to borrow money from the public (many lenders). This is a source to raise funds. The corporation will receive cash when bonds are issued.
The face value of the bonds must be repaid to the bondholders on the maturity date of the bonds. The face value of the bonds must be repaid to the bondholders on the maturity date of the bonds. Also, the bond issuers will pay interests to the bondholders periodically (i.e., semiannually).
LongTerm Liability: if bonds mature in more than one year. LongTerm Liability: if bonds mature in more than one year. ShortTerm Liability: if bonds mature in less than one year
Bond Indenture is an agreement between the bond issuer and investors stating the following: Bond Indenture is an agreement between the bond issuer and investors stating the following: The indenture is held by a trustee appointed by the issuing firm to represent the rights of the bondholders.
Bond Covenant is a contractual provision in a bond indenture (source: financial dictionary). Bond Covenant is a contractual provision in a bond indenture (source: financial dictionary). Financial covenant: requiring issuers to maintain financial ratios such as debt/equity ratio and the interest coverage ratio at a certain level. Nonfinancial covenant: requiring the disclosure of certain financial information.
1. Receive the approval from the stockholders and regulatory authorities (i.e., the SEC). 1. Receive the approval from the stockholders and regulatory authorities (i.e., the SEC). 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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