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

The price of a bond is based on which cash flow(s)?

The sum of the bond's face value and coupon rate

The present value of all future interest payments and the principal repayment at maturity

Only the future interest payments

Only the principal repayment at maturity

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Verified step by step guidance

Understand the concept of bond pricing: A bond's price is determined by the present value of its future cash flows, which include periodic interest payments (coupon payments) and the repayment of the principal (face value) at maturity.

Identify the cash flows involved: Bonds typically have two types of cash flows—(1) periodic coupon payments, which are calculated as the bond's coupon rate multiplied by its face value, and (2) the principal repayment at maturity, which is the face value of the bond.

Apply the concept of present value: To determine the bond's price, each cash flow must be discounted to its present value using the appropriate discount rate, which is often the market interest rate or yield to maturity.

Use the formula for present value: The present value of a future cash flow is calculated using the formula \( PV = \frac{FV}{(1 + r)^n} \), where \( FV \) is the future value (cash flow), \( r \) is the discount rate, and \( n \) is the number of periods until the cash flow occurs.

Sum the present values: Add the present values of all future coupon payments and the principal repayment at maturity to calculate the total price of the bond.