# Shared Flashcard Set

## Details

Present Value and Bonds Drill
Concepts on present value and bonds
8
10/06/2010

Term
 Give the present value formula
Definition
 PV = CF * (1 / (1+r)^t)
Term
 Given the present value formula, how does an increase in the number of periods used (t) effect the present value?
Definition
 Increases in t cause PV to decrease
Term
 Given the present value formula, how does an increase in the interest rate effect the present value?
Definition
 Increases in r cause PV to decrease.
Term
 How does the market price a bond?
Definition
 1) Determine the PV of principal repayment (single amount)2) Determine the present value of the interest payments3) Add together for market price
Term
 How do you calculate the present value of principal repayment of a bond (1st step in pricing a bond)
Definition
 Standard present value formula with CF = bond face value.
Term
 How do you calculate the periodic interest payment a company makes?
Definition
 Face value of bond * coupon rate
Term
 How do you calculate the present value of the interest payments for a bond (second step in pricing)
Definition
 Periodic payment * PVFa.
Term
 With a periodic bond interest payment, what four things to you change on the statement of effects template?
Definition
 1) Cash2) Retained Earnings (interest expense)3) Bond payable net4) Interest expense on income statement
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