Question

1.Presents highly accurate and appropriately detailed advice on how to account for Step-up Bond at issuance, interest dates and maturity based on Australian accounting standards.

2.Presents highly accurate and appropriately detailed advice on how to account for Convertible Bond at issuance, interest dates, maturity and conversion based on Australian accounting standards.

Answer 1

1.A step up bond is a bond with a coupon that increases usually at regular intervals while the bond is outstanding the coupon rate is the yield the bond paid on its issue date .the yield changes as the value changes thus giving the bonds yield to maturity .

Interst rate on a bond by its issuer for the term of the security .Once set at issuance date a bonds rate remaind unchanged and holders of the bond received fixed interest payment .an bond issuer decides on the coupon based market interest rates at the time of issuance .market rate changes over time and as they move higher or lower the bond interest rate increases or decreases respectively ..

When investors buy a bond initially at face value and then hold the bond to maturity, the interest they earn on the bond is based on the coupon rate set forth at the issuance. For investors acquiring the bond on the secondary market, depending on the prices they pay, the return they earn from the bond's interest payments may be higher or lower than the bond's coupon rate. This is the effective return called yield to maturity.

For Eg: a bond with a par value of 100 but traded at 90 gives the buyer a yield to maturity higher than the coupon rate. Conversely, a bond with a par value of 100 but traded at 110 gives the buyer a yield to maturity lower than the coupon rate...