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

Which of the following are the four variables required to calculate the value of a bond?

Face value, dividend rate, inflation rate, and time since issuance

Coupon rate, stock price, maturity date, and credit rating

Market price, coupon payment, par value, and number of bondholders

Face value, coupon rate, market interest rate (yield to maturity), and time to maturity

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Verified step by step guidance

Step 1: Understand the concept of bond valuation. Bonds are financial instruments that represent a loan made by an investor to a borrower. The value of a bond is determined by several key variables that influence its price and yield.

Step 2: Identify the four variables required to calculate the value of a bond. These are: (1) Face value (the principal amount to be repaid at maturity), (2) Coupon rate (the annual interest rate paid on the bond), (3) Market interest rate (also known as yield to maturity, which reflects the current market rate for similar bonds), and (4) Time to maturity (the remaining time until the bond's principal is repaid).

Step 3: Recognize why these variables are important. The face value determines the amount repaid at maturity, the coupon rate determines periodic interest payments, the market interest rate reflects the bond's attractiveness compared to other investments, and the time to maturity affects the present value of future cash flows.

Step 4: Exclude irrelevant variables. For example, dividend rate, inflation rate, stock price, credit rating, and number of bondholders are not directly used in bond valuation calculations. Focus only on the four key variables mentioned above.

Step 5: Apply these variables in the bond valuation formula. The formula typically involves calculating the present value of the bond's future coupon payments and the present value of its face value at maturity, using the market interest rate as the discount rate. Use the formula: PV = Σ (C / (1 + r)^t) + (FV / (1 + r)^T), where PV is the bond's price, C is the coupon payment, r is the market interest rate, t is the time period, FV is the face value, and T is the time to maturity.