F4 - Bonds (Andrew) Flashcards
Use excel for the bonds, but use this chart format in columns:
Cash / Int / Amort /CV
For the CASH column remember its called INT PAYABLE it stays the same every period and you solve it by:
FACE VALUE X Contractual(stated rate)
For the INT column remember its called INT EXPENSE cv changes so new number everytime and you solve it by:
CV X effective rate(mkt rate/yield rate)
TIP: Focus on DATES
Straight line ammortization -
higher in at the beg. but at the end it makes NO IMPACT
In a DISCOUNT bond INT Expense(column) is ,…
higher than cash payment (column)
For the AMMORT column you solve it by:
By subtracting int payable - int exepnse or cash column - int column
For the CV column you solve it by
Beg CV +/- Ammort and then keep using the newest CV to subtract from
In a discount bond you add or subtract to CV?
You add the ammort to CV
In a premium bond you add or subtract to CV?
You subtract the ammort to CV
Redeemed bonds JE is?
DR - BP (original)
DR - Loss on debt extinguishment
CR - Cash (BP X %)
CR - Discount BP + issuanc cost