Explain what it means to amortize a discount or premium.
Solution:
Amortize a discount or premium means to allocate discount or premium on bond payable to interest expense over the life of the bonds. Amortization of discount or premium can be done by using straight line method or effective interest method.
Under straight line method, equal amount is amortized at every interest date. However under effective interest method, amortization is done based on effective interest.
Explain how interest rates can be so influential in bond pricing. Explain what it means to , " ... trade at par, at premium, or at discount. " .
Explain why some bonds sell for a premium while others sell for discount?
help me with the ones i got wrong please Amortize Discount by interest Method On the first day of its fiscal year, Ebert Company issued $50,000,000 of 10-year, 7% bonds to finance its operations. Interest is payable semiannually. The bonds were issued at a market (effective) interest rate of 9%, resulting in Ebert receiving cash of $43,495,895. The company uses the interest method. a. Journalize the entries to record the following: 1. Sale of the bonds. Round to the nearest...
Identify/explain the relationship between coupon rate and yield to maturity for: Discount Bonds Premium Bonds Par Value Bonds
What is meant by a “term premium”? What can explain such a premium? Is it a risk premium? Why or why not? In our “roll-over” model of bank liquidity provision, how does a positive term premium arise?
Please solve clearly and explain all steps A discount bond sells for less than par. This means the Yield to Maturity is... ...is a premium bond rate. ...is equal to the coupon rate. ...higher than the coupon rate. ...lower than the coupon rate.
Please help with the journal entries for both the premium amortized and discount amortized. Thanks in advance! Flounder Co. sells $423,000 of 12% bonds on June 1, 2020. The bonds pay interest on December 1 and June 1. The due date of the bonds is June 1, 2024. The bonds yield 10%. On October 1, 2021, Flounder buys back $131,130 worth of bonds for $136,130 (includes accrued interest). Give entries through December 1, 2022. Prepare a bond amortization schedule using...
If a bond has a coupon of 5% and YTM of 7%, what type of bond is it (premium or discount)?
6. Suppose the economy has an inverted yield curve. Using the liquidity premium theory explain what this means for future short term interest rates. What does this imply about the business cycle? (5 pts)
Explain what a marginal means effect plot is and what it means to the analysis of the experiment.