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Chapter 5: 2DQ (page 524)

What are some specific features of bond agreements? (LO16-1)

Short Answer

Expert verified

Par value, coupon rate, and maturity date are some specific features of bond agreements.

Step by step solution

01

Bond agreements

A corporate bond indicates the long-term debt instrument, and a bond agreement represents the necessary information associated with the same.

02

Features of bond agreements

The bond agreements contain the following features:

  • Par value: The par represents the initial value of a bond and is also known as principal orface value.
  • Coupon rate: The coupon rate represents the actual interest rate on the bonds to be paid by the corporation.
  • Maturity date: The date represents the final date on which the bond鈥檚 principal amount will be repaid.

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Most popular questions from this chapter

American Health Systems currently has 6,400,000 shares of stock outstanding and will report earnings of \(10 million in the current year. The company is considering the issuance of 1,700,000 additional shares that will net \)30 per share to the corporation.

a. What is the immediate dilution potential for this new stock issue?

b. Assume that American Health Systems can earn 9 percent on the proceeds of the stock issue in time to include them in the current year鈥檚 results. Calculate earnings per share. Should the new issue be undertaken based on earnings per share?

Discuss the relationship between the coupon rate (original interest rate at time of issue) on a bond and its security provisions. (LO16-1)

Explain how the zero-coupon rate bond provides return to the investor. What are the advantages to the corporation? (LO16-2)

If a company were looking for capital by way of a private placement, where would it look for funds?

Bonds of different risk classes will have a spread between their interest rates. Is this spread always the same? Why? (LO16-2)
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