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

In the context of bonds, what is the term premium?

The fee paid by the issuer to redeem a bond before its maturity date.

The amount by which a bond's price exceeds its face value.

The difference between a bond's coupon rate and its yield to maturity.

The additional yield that investors require for holding a longer-term bond instead of a series of shorter-term bonds.

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Verified step by step guidance

Understand the concept of a term premium: The term premium refers to the additional yield that investors demand for holding a longer-term bond compared to a series of shorter-term bonds. This compensates for risks such as interest rate changes and inflation over a longer time horizon.

Differentiate the term premium from other bond-related terms: For example, the fee paid by the issuer to redeem a bond early is called a 'call premium,' and the amount by which a bond's price exceeds its face value is referred to as a 'bond premium.' These are distinct from the term premium.

Recognize the relationship between the term premium and bond maturity: Longer-term bonds typically carry higher risks due to uncertainties over time, which is why investors require a term premium as compensation.

Analyze the factors influencing the term premium: These include expectations of future interest rates, inflation, and the overall risk appetite of investors in the bond market.

Apply this understanding to the given options: The correct answer is the additional yield that investors require for holding a longer-term bond instead of a series of shorter-term bonds, as it directly defines the term premium.