Term
| Give the present value formula |
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Definition
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Term
| Given the present value formula, how does an increase in the number of periods used (t) effect the present value? |
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Definition
| Increases in t cause PV to decrease |
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Term
| Given the present value formula, how does an increase in the interest rate effect the present value? |
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Definition
| Increases in r cause PV to decrease. |
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Term
| How does the market price a bond? |
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Definition
1) Determine the PV of principal repayment (single amount)
2) Determine the present value of the interest payments
3) Add together for market price |
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Term
| How do you calculate the present value of principal repayment of a bond (1st step in pricing a bond) |
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Definition
| Standard present value formula with CF = bond face value. |
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Term
| How do you calculate the periodic interest payment a company makes? |
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Definition
| Face value of bond * coupon rate |
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Term
| How do you calculate the present value of the interest payments for a bond (second step in pricing) |
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Definition
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Term
| With a periodic bond interest payment, what four things to you change on the statement of effects template? |
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Definition
1) Cash
2) Retained Earnings (interest expense)
3) Bond payable net
4) Interest expense on income statement |
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