Examples of market rate in the following topics:
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- Whether the amount the business will receive equals its face value depends on the difference between the bond's contract rate and the market rate of interest at the time the bond is issued .
- The market rate is what other bonds that have a similar risk pay in interest.
- If the market rate is less than the coupon rate, the bonds will probably be sold for an amount greater than the bonds' value.
- If the market and coupon rates differ, the issuing company must calculate the present value of the bond to determine what price to charge when it sells the security on the open market.
- The discount rate for both the principal and interest payment components is the market rate when the bond was issued.
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- The market price of a bond is expressed as a percentage of nominal value.
- The more risk assessed to a company the higher the interest rate the issuer must pay to buyers.
- If a bond has a coupon interest rate that is higher than the market interest rate it is considered a premium.
- The premium (higher interest rate) is to offset the assumed higher than average risk associated with investing in the company.
- Bonds are considered issued at a discount when the coupon interest rate is below the market interest rate.That means a company selling bonds at a discount rate receive less than the face value of the bond in the sale.
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- A bond's book value is affected by its term, face value, coupon rate, and discount rate.
- This allows people who originally acquire a bond to sell it on the open market for an immediate payout, as opposed to waiting for the issuing entity to pay the debt back.
- Note that the trading value of a bond (its market price) can vary from its face value depending on differences between the coupon and market interest rates.
- While the coupon rate is generally a fixed amount, it can also be "indexed. " This means that the interest rate is calculated by taking an established rate that fluctuates over time, such as a bank's lending rate, and adding a "premium" percentage amount to determine the bond's coupon rate.
- In practical terms, the discount rate generally equals the coupon rate or interest rate associated with similar investment securities.
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- A low turnover rate may point to overstocking, obsolescence, or deficiencies in the product line or marketing effort.
- However, in some instances a low rate may be appropriate, such as where higher inventory levels occur in anticipation of rapidly rising prices or expected market shortages.
- A high turnover rate may conversely indicate inadequate inventory levels, which may lead to a loss in business as the inventory is too low.
- Sales are generally recorded at market value, which is the value at which the marketplace paid for the good or service provided by the firm.
- In the event that the firm had an exceptional year and the market paid a premium for the firm's goods and services, the numerator may be an inaccurate measure.
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- Early redemption happens on issuers or holders' intentions, more likely as interest rates are falling and bonds contain embedded options.
- It is notable that early repurchase happens more often when the interest rate in the market is on decline and when the bond contains an embedded option.
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- The coupon is the interest rate that the issuer pays to the bond holders.
- Usually this rate is fixed throughout the life of the bond.
- The yield is the rate of return received from investing in the bond.
- It is equivalent to the internal rate of return of a bond.
- High-yield bonds are bonds that are rated below investment grade by the credit rating agencies.
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- If a company cannot reasonably estimate the amount of future returns and/or has extremely high rates of returns on sales, they should recognize revenues only when the right of return expires.
- Those companies that can estimate the number of future returns and have a relatively small return rate can recognize revenues at the point of sale, but must deduct estimated future returns.
- A street market seller recognizes revenue when he relinquishes his merchandise to a buyer and receives payment for the item sold.
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- The most common type of debt refinancing occurs in the home mortgage market.
- To take advantage of a better interest rate or loan terms (a reduced monthly payment or a reduced term)
- To reduce the monthly repayment amount (often for a longer term, contingent on interest rate differential and fees)
- To reduce or alter risk (e.g. switching from a variable-rate to a fixed-rate loan)
- To free up cash (often for a longer term, contingent on interest rate differential and fees)
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- Analyzing long-term liabilities combines debt ratio analysis, credit analysis and market analysis to assess a company's financial strength.
- Standard & Poor's is a credit rating agency that issues credit ratings for the debt of public and private companies.
- The best rating is AAA with the worst being D.
- Please consult the figure as an example of Standard & Poor's credit ratings issued for debt issued by governments all over the world.
- There is more to analyzing long-term liabilities than simply reading a company's credit rating and performing independent debt ratio analysis.
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- A franchisor will develop the brand, produce goods and develop marketing campaigns for its products.
- A franchisee will then purchase the rights to sell the franchisor's products in a given area and benefit from the franchisor's marketing efforts.
- The amortization rate is calculated by dividing the initial value of the asset by its useful life.
- Every accounting period, the value of the asset is decreased by the amortization rate.
- The business also records an expense equal to the amortization rate every accounting period.