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How Bonds Work

How Bonds Work. Georgia CTAE Resource Network Instructional Resources Office Written by: Dr. Marilynn K. Skinner May 2009. Bond terms. Face Value Coupon Rate Maturity Market Rate. Bond Example.

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How Bonds Work

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  1. How Bonds Work Georgia CTAE Resource Network Instructional Resources Office Written by: Dr. Marilynn K. Skinner May 2009

  2. Bond terms • Face Value • Coupon Rate • Maturity • Market Rate

  3. Bond Example • A company issues a $30,000 10-year bond with a 6% coupon rate. Each year, the owner receives $1,800 (6% of $30,000), paid in two semiannual installments of $900.

  4. Bond Example

  5. Journal Entry – Sale of Bonds at Face Value

  6. Journal Entry – Payment of Bond Interest

  7. Bond Prices How are they quoted?

  8. Bond Prices How are they quoted? As a percentage of face value!

  9. Bond Prices

  10. Market Rate > Coupon Rate • A company issues a $30,000 10-year bond with a 6% coupon rate. Each year, the owner receives $1,800 (6% of $30,000), paid in two semiannual installments of $900. Bond sells at 95.

  11. Journal Entry – Sale of Bonds at 95

  12. Journal Entry – Payment of Bond Interest

  13. Journal Entry – Amortization of Discount

  14. Figuring Book Value

  15. Market Rate < Coupon Rate • A company issues a $30,000 10-year bond with a 6% coupon rate. Each year, the owner receives $1,800 (6% of $30,000), paid in two semiannual installments of $900. Bond sells at 103.

  16. Journal Entry – Sale of Bonds at 103

  17. Journal Entry – Payment of Bond Interest

  18. Journal Entry – Amortization of Discount

  19. Figuring Book Value

  20. Review Terms • Bond • Face Value • Coupon Rate • Maturity • Market Rate • Bond prices • Book Value

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