bonds and long-term notes - utep（债券和长期票据u2014u2014艾尔伯索）.pdf

Bonds and Long-Term Notes BONDS Long-term debt is comprised of those obligations that will become due in more than one year or the operating cycle whichever is longer. The two types of long-term debt discussed in this chapter are bonds and long-term notes. Long-term debt typically has covenants or restrictions imposed on the borrower to protect the lender. Bonds Bonds are long-term obligations issued by publicly traded companies that segment the obligation into multiple instruments so that it can be sold to a large number of investors. The bonds are normally denominated in $1,000 increments so that if the company issues $10 million in bonds it is actually issuing 10,000, $1,000 bonds. The contract is called a bond indenture, which is the promise to pay a sum certain (Face Amount), plus periodic interest (Stated Interest) based on the face amount of the bond. Valuation of Bonds The time lag between the authorization and issuance of bonds is rather long. The bonds are issued at a stated, coupon or nominal rate of interest which is set long before the bonds are actually issued. During this time lag market interest rates may have increased or decreased relative to the stated rate. The interest paid on a bond is the stated rate based on the face amount (par value, principal amount, or maturity value). At the date of issue the bonds will be sold to the investment community based on market interest rates. The investment community values the bonds at the present value of their future cash flow, which includes the principal payment at the maturity date and the periodic interest payments. Both these cash flows are discounted at the market rate of interest on the date of issue. If the stated rate and the market rate are different the bonds will be sold at a premium (the market rate is less than the stated rate) or at a discount (the market rate is greater than the stated rate). Example: Bonds Issued at Par Spencer Compan