Question

EXERCISE 1

Match the items below by entering the appropriate code letter in the space provided.

          A.    Bond certificate                                      F.    Payout ratio

          B.    Market interest rate                                G.    Declaration date

         C.    Discount on bonds payable                   H.    Legal capital

         D.    Face value                                             I.      Treasury stock

          E.    Maturity date                                         J.     Cumulative dividend

_------_ 1. Occurs when the contractual rate of interest is less than the market rate of interest.

-------     2. A legal document that indicates the face value of the bonds and other data.

------      3. The rate investors demand for loaning funds to a corporation.

____    4. Amount of principal due at the maturity date of the bond.

--------- 5. The time that the final payment on a bond is due from the bond issuer.

____     6. The date the board of directors formally declares a dividend.

-------     7. The amount that must be retained in the business for the protection of creditors.

____     8. Preferred stockholders have a right to receive current and unpaid prior-year dividends before common stockholders receive any dividends.

____     9. Measures the percentage of earnings distributed in the form of dividends to common stockholders.

____ 10.    Corporation’s own stock that has been reacquired by the corporation but not retired.

Answer 1

1. Occurs when the contractual rate of interest is less than market rate of interest - Discount On Bond's Payable ( C )

2. A Legal document that indicates the face value of bond and other details - Bond Certificate (A)

Bond Certificate is the document which contains the details about the details like number of Bonds issue, Price at which Bonds are issued, Redemption Value of Bonds Payables, Interest Rate to be paid on Bonds etc.

3. The Rate Investors demand for loaning funds to a Corporation - Market Interest Rate (B)

Every Sensible Investors understand the concept of Time Value of Money so he will always charge a rate of interest on the funds loaned at the relevant market rates to get the maximum Income on Amount invested.

4. Amount of Principal due at the maturity date of Bonds - Face Value (D)

Face Value is the initial amount which was borrowed to the company and is payable on a fixed maturity date specified at the time of issuance of Bonds.

5. The time that the final payment on the bond is due from the bond issuer - Maturity Date (E)

Maturity Date is the date at which the whole of the amount of amount borrowed is returned and all debts are cleared.

6. The date the Board of Directors formally declare a Dividend - Declaration Date (G)

Declaration Date is the date at which the Dividend is due to the shareholders and it becomes a Liability to be paid.

7. The amount that must be retained in the business for the protection of Creditors - Legal Capital (H)

It is the amount equal to face value of common stock which is kept intact in the business for safety of the investors and other predetermined requirements.

8. Preferred Shareholder have a right to recieve any Dividend including unpaid prior year Dividend before any Dividend is paid to Common Stockholders - Cumulative Dividend (J)

As the word suggest cumulative Dividend means the unpaid previous year Dividend gets a accumulated in case of arrears and to be paid in future.

9. Measures the percentage of Earnings distributed in the form of Dividend to Common Shareholders - Payout Ratio (F)

Payout Ratio is the ratio which measures the relationship between earnings per share and dividends per share.

10. Corporation own stock that has been reacquired by the Corporation but not retired - Treasury Stock (I)

Treasury Stock is the stock which the company purchase back after issuance but they have the right to reissue it again in the market so it is acquired back stock but not the retired one.