Question

In: Accounting

How does a company determine what interest to charge on a bond? At what point in...

How does a company determine what interest to charge on a bond? At what point in the process would a bond be sold at premium or discount? What are the stages of a bond?

Solutions

Expert Solution

The company detemines the interest rate to be charged on a bond is by the factors:

  • Federal funds rate - It is the interest rate that banks with excess reserve at the federal reserve district bank charge on other banks.
  • Fed's discount rate - the rate at which member banks borrow short term funds from Federal reserve bank. Fed directly control this rate.

A bond when traded above its par value is called as a premium bond or bond sold at premium. The trading is done at premium when it offers coupon rate higher than the existing rate of interest. This is done because investors wants higher yields and can pay more for it for the future benefit.

A bond which is traded less than its par value in the secondary market is called as a discount bond. The coupon rate will be lower than the interest rate. The investors as want a higher yeild, they will pay less for the coupoun rate lower than the prevailing rate.

There are 3 stages of bonds :

  • Investment goal - at this stage how much capital can be invested or maximizes is determined
  • Inveatment horizon - How long u need to access your money is the key point to determine
  • Risk tolerance - how much risk you can comfortably take is the key point.

ekkarill92 answered 1 year ago
Next > < Previous

Related Solutions

how does interest rate determine from a lenders, borrowers, investors and economy point of view?
how does interest rate determine from a lenders, borrowers, investors and economy point of view?
How does the seller/supplier determine how much to charge for a product? What must he or...
How does the seller/supplier determine how much to charge for a product? What must he or she take into account? Important: the question is part of an assignment about the Law of Supply in economics
INFO: Company A does not accept credit cards and does not charge interest on receivables and...
INFO: Company A does not accept credit cards and does not charge interest on receivables and uses the direct write-off method to record any bad debt expense; Currently, Company A Days Sales In A/R is 62 days. The industry average last year was 33 days for organizations in similar industries with comparable sales Age of Receivables Amount Outstanding %age uncollectable Current Accounts $3,000,000.00 1.00% 0–30 days past due 400,000.00 3.00% 31–60 days past due 350,000.00 6.00% 61–90 days past due...
A -12.7nC point charge and a +21.3nC point charge are 13.8cm apart on the x-axis. What...
A -12.7nC point charge and a +21.3nC point charge are 13.8cm apart on the x-axis. What is the electric potential at the point on the x-axis where the electric field is zero? Incompatible units. No conversion found between "m/s" and the required units. Tries 0/10 Previous Tries What is the magnitude of the electric field at the two points on the x-axis where the electric potential is zero? (Input your answers in order of increasing distance from the negative point...
1. How does collateral affect the interest rate on a bond? How does subordination affect the...
1. How does collateral affect the interest rate on a bond? How does subordination affect the interest rate on a bond too? What else might affect the interest rate on a bond? 2. What is liquidation and reorganization? When should each be used? Please choose one company that has gone through either type of bankruptcy proceeding and describe the circumstances leading up to the filing.
1. How does collateral affect the interest rate on a bond? How does subordination affect the...
1. How does collateral affect the interest rate on a bond? How does subordination affect the interest rate on a bond too? What else might affect the interest rate on a bond?
A point charge of is at the origin, and a second point charge of +6.00nC is...
A point charge of is at the origin, and a second point charge of +6.00nC is on the x axis at x=0.800m Find the magnitude and direction of the electric field at each of the following points on the x axis a)x=20.0cm b)x=1.20m c) -20.0cm so, since its electric field question using e=k*q/r^2 i can solve this so, e= (k*q/r^2) + (k*q/r^2) so, +6.00nC is on the x axis at x=0.800m.... and -4.00nC is at the origin.. so 0. a)...
1) Determine the potential at a point 35 cm from; a) a +15 x10-6C charge point...
1) Determine the potential at a point 35 cm from; a) a +15 x10-6C charge point    b) at a 12 uC charge point 2) Determine the minimum work to be done by an external force that has a charge q = 300 uC from a distance (not defined) to a point 50 cm with a load of 20 x 10-6 C. 3) We have 2 charging points, where Q1 = -25.0 uC and the other has Q2 = +50.0...
A point of charge q is placed at the point (-d,0) and a second point charge...
A point of charge q is placed at the point (-d,0) and a second point charge of charge 2q is placed at point (2d,0). a) What is the force on the third charge of charge -q placed at point (0,d) if d=190nm and q=250nC? b) find the two positive charges placed on the x-axis? c) What is the electric field at the origin?
What does the term “non-controlling” interest mean? How is the non-controlling interest in a subsidiary company...
What does the term “non-controlling” interest mean? How is the non-controlling interest in a subsidiary company calculated as of the end of a reporting period?
ADVERTISEMENT
Subjects
ADVERTISEMENT
Latest Questions
ADVERTISEMENT