Table of contents

1. Introduction to Accounting1h 21m
2. Transaction Analysis1h 13m
3. Accrual Accounting Concepts2h 38m
4. Merchandising Operations2h 30m
5. Inventory1h 55m
6. Internal Controls and Reporting Cash1h 16m
7. Receivables and Investments3h 8m
8. Long Lived Assets5h 1m
9. Current Liabilities2h 19m
10. Time Value of Money1h 23m
- Time Value of Money Equations
  35m
- Using Time Value of Money Tables
  47m
11. Long Term Liabilities2h 45m
12. Stockholders' Equity2h 15m
13. Statement of Cash Flows2h 24m
14. Financial Statement Analysis5h 25m
15. GAAP vs IFRS56m

11. Long Term Liabilities

Introduction to Bonds and Bond Characteristics

Financial Accounting

11. Long Term Liabilities

Introduction to Bonds and Bond Characteristics

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Multiple Choice

How are investors in zero-coupon bonds compensated for making such an investment?

They receive interest payments periodically throughout the life of the bond.

They receive a fixed coupon payment every six months.

They receive the bond's face value at maturity, which exceeds the price they paid, resulting in a capital gain.

They are paid dividends annually based on the issuer's profits.

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Verified step by step guidance

Understand the concept of zero-coupon bonds: These are bonds that do not pay periodic interest (coupons) during their life. Instead, they are issued at a discount to their face value and provide returns through capital gains when they mature.

Recognize how investors are compensated: Investors purchase the bond at a price lower than its face value. The difference between the purchase price and the face value represents the investor's return.

Calculate the return on investment: The return is determined by the formula: \( ext{Return} = ext{Face Value} - ext{Purchase Price} \). This return is realized at the bond's maturity.

Understand the time value of money: The discounted price reflects the present value of the bond's face value, considering the time until maturity and the prevailing interest rates.

Clarify the distinction from other investments: Unlike bonds with periodic interest payments or stocks with dividends, zero-coupon bonds provide a lump-sum payment at maturity, which is the sole source of compensation for the investor.