Finance Long Term Debt

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FinanceLong Term Debt

• John Mainieri
• Mesa Community College

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Bond Vocabulary

• Par Value
• Face Value
• Maturity Value
• Stated Rate
• Nominal Rate
• Coupon Rate

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More Bond Vocabulary

• Maturity Date
• Interest Payment Dates
• Debenture Bond

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Still More Bond Vocabulary

• Term bond
• Serial bond
• Secured and unsecured
• Convertible to common stock
• Guaranteed
• Callable
• Registered or coupon

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Long Term Debt

• Offered for sale
• 100,000 of Vason Corp., 9, 5 year Debenture
  Bonds, due January 1, 2004, interest due January
  1 and July 1

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Vason Corp.

• 100,000
• Par value
• Face value
• Maturity value
• 9
• Stated rate
• Nominal rate
• Coupon rate

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• Due January 1, 2004
• Maturity date
• January 1 and July 1
• Interest payment dates
• Debenture bond
• Unsecured

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Term Bond

• All bonds come due on the same date

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Serial Bond

• The bonds mature at different dates

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Secured

• Certain assets are pledged (mortgage bond)

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Unsecured

• Lender relies on the general credit of the
  company (debenture bond)

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Guaranteed

• Usually by the owner of the company

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Callable

• Right of issuer to pay off bonds before maturity
  date

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Registered

• Name and address of the owner is recorded

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Coupon

• Bearer bond, not registered in owners name

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Vason Corp

• Sale price 96,139
• The effective market yield is greater than 9
• Difference between sale price and par value
• Discount or premium
• These bonds were sold at a discount (below par
  value)

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When Should a Company Borrow Long-term?

• Companies borrow long-term to finance long-term
  assets.
• Property, Plant and Equipment
• Long-term investments in other companies.

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When Should a Company Borrow Short-term?

• They should borrow short-term to finance
  short-term assets.
• Accounts Receivable
• Inventory

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Rules for Investing

• Similar rules hold for investing your money.
• Match your investment to your needs.