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Market rate of bond is that rate at which that bond will be sale in market and it is different from face value of bond as well as book value of bond.
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Advantages and disadvantages of issuing bond?
You don't loose any control of your company like a share issue The bond coupon or interest payment is tax deductible expense You get a fixed rate of interest and not subject to Market fluctuations Disadvantage They Carry a higher interest rate They are not suitable for small loan amount due to the high fixed cost of issue them
For a bond issue that sells for more than its face value the market rate of interest is?
This will be a lower amount than what is on the band. You would need to pursue the investment in order to receive the full amount of interest.
Is the straight-line amortization or effective interest rate method better?
This method is preferred over the straight-line method of amortizing bond discount or bond premium. Amortization of a bond discount or premium is the difference between the interest expense and the nominal interest payment. The amortization entry is: Interest Expense (effective interest rate x carrying value) Cash (nominal interest rate x face value) Bond Discount (for the difference)
What is the theory behind requiring bond issuers to charge bond discounts to interest expense when the discount is amortized?
When a bond matures the issuer has to pay the investor the full face value of the bond. The bond will also have a stated interest rate. If an investor will only accept a rate of interest which is higher than the stated interest rate, the issuer will likely sell the bond for less than the present value of the face value of the bond. For example, If a $100,000 bond is issued with a $4,000 discount to meet the buyers desired return, the issuer will have to pay the investor the $96,000 ($100,000-$96,000) the issuer received plus the $4,000 discount upon maturity. Since the issuer has to pay out that $4,000, upon maturity, to secure $96,000 the $4,000 discount is recognized by the issuer as interest expense (over the life of the bond).
How do you calculate fair market value for date of death for bonds?
There are websites that will allow you to input the bond's CUSIP number and date, and it will tell you the value. Google "bond" "CUSIP" and "value".
When market interest rates exceed a bond's coupon rate the bond will?
When market interest rates exceed a bond's coupon rate, the bond will:
What occurs when a bond's stated interest rate is less than the market interest rate?
Since the current market interest rate is higher, it is more attractive to a new investor then the bond with a lower interest rate. Thus, the price of the lower interest rate bond has to decline to be competitive with new bonds in the market.
What are Bond Premiums and Discounts?
Bond premiums refer to bonds that are issued at a price above its face value. for example, if the market rate for a bond is 8% and the stated rate on the bond is 9% then it would be a premium bond. Bond discounts refer to bonds that are issued at a price below its face value. For example, if the market rate for a bond is 9% and the stated rate on the bond is 10%, then it would be a discount bond.
What does the R157 capital market bond rate indicate?
This indicates the rate at which the R157 bond is trading. This rate however is used frequently to describe the Risk Free Rate of Return for the market, which is required for CAPM calculations.
How would you define the market rate for a bond?
The actual interest rate, however, determined at auction, is referred to as the market rate. The market rate may equal the stated rate, or it may be higher or lower.
What occurs when a bonds stated interest rate is less than the market interest rate?
Since the current market interest rate is higher, it is more attractive to a new investor then the bond with a lower interest rate. Thus, the price of the lower interest rate bond has to decline to be competitive with new bonds in the market.
What occurs when a bond's stated interest rate is greater than the market interest rate?
The bond's price will be in premium, meaning exceed 100
What is floating rate bond?
A floating rate note (FRN) is a bond whose coupon (interest) goes up and down with market rates.
What is the annual rate of return on a bond bought on the open market?
yield
What is the annual rate of return on a bond bought on the open market called?
yield
What is the annual rate of a return on a bond bought on the open market called?
yield
What is the rate of return required by investors in the market for owning a bond called?
YTM
