Match each term with its definition or explanation. Terms can be used more than once. Term a.
Question:
Term a. Face value b. Premium c. Maturity date d. Discount e. Interest payment Definition/Explanation frequency with which cash interest payments are made to the bondholders nominal rate principal occurs when a bond issue is priced below par value occurs when the effective interest rate is higher than the stated interest period f. Stated interest rate g. Market rate rate par value occurs when a bond issue is prioed above par value amount of interest that the bond issuer will pay in cash expressed as an annual rate occurs when the effective interest rate is lower than the stated interest rate face rate actual return that the investors will receive specified date when the bond issuer must pay the face value of the bonds to the bondholders coupon rate the amount that the company will pay the bondholder at maturity
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Term Definition Explanation a Face value b Premium c Maturity date d Discount e Inte...View the full answer
Intermediate Accounting
ISBN: 978-0132162302
1st edition
Authors: Elizabeth A. Gordon, Jana S. Raedy, Alexander J. Sannella
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Bond valuation is the process of determining the worth of a bond. It is based on the present value of the bond\'s future cash flows, which include coupon payments and the return of the bond\'s face value (or \"principal\") at maturity. The discount rate used in the calculation is directly tied to prevailing interest rates, and a rise in interest rates will decrease the present value of the bond and thus lower its price. Conversely, a fall in interest rates will increase the present value of the bond and raise its price. Interest rates serve as a benchmark for determining the value of a bond, as they determine the discount rate used in the bond valuation calculation. The most commonly used measure of interest rates is the yield to maturity (YTM), which represents the internal rate of return of an investment in a bond if the investor holds the bond until maturity and receives all scheduled payments. Yield to maturity is a function of the coupon rate, the current market price of the bond, the face value of the bond, and the number of years remaining until maturity. By comparing the yield to maturity of a bond to prevailing market interest rates, an investor can assess the relative value of the bond.
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