Usually fixed over the issue’s life but can be variable as the indenture allows coupon rate on new issues affected by market interest rates and bond rating.

elect a company with long term bonds outstanding. There are many examples in the textbook. Locate and analyze a current quotation for that bond. Use figure 10.2 in the textbook as a guide. Compare the current price with the par value. Explain at least one (1) reason for the difference.

TABLE 10.2

Common elements of Bonds

Represent borrowed funds

Contractual agreement between a borrower and lender (INDENTURE)

Senior claim on assets and cash flow

No voting right

Par value

Having a Bond rating improves the issue’s marketability to investor’s covenants

Interest: tax deductible to the issuing firm

Usually fixed over the issue’s life but can be variable as the indenture allows coupon        rate on new issues affected by market interest rates and bond rating.

Maturity: usually fixed; can be affected by convertibility, call and put provisions, sinking fund,      extendibility features in the indenture.

Security: can have senior claim on specific assets pledged in case of default or can be unsecured(debenture

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