secured bond
(noun)
a debt security in which the borrower pledges some asset as collateral
Examples of secured bond in the following topics:
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Types of Bonds
- The most common secured bonds.
- This bears the owner's name on the bond certificate and in the register of bond owners kept by the bond issuer or its agent, the registrar.
- A term bond matures on the same date as all other bonds in a given bond issue.
- Serial bonds in a given bond issue have maturities spread over several dates.
- Differentiate be the various types of bonds including secured and unsecured, registered and unregistered and convertible
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Factors Affecting the Price of a Bond
- A bond is a financial security that is created when a person transfers funds to a company or government, with the understanding that at some point in the future the entity issuing the bond will have to repay the amount, plus interest .
- A bond's coupon is the interest rate that the business must pay on the bond's face value.
- The discount rate is a measure of what the bondholder's return would be if he invested his money in another security.
- In practical terms, the discount rate generally equals the coupon rate or interest rate associated with similar investment securities.
- A bond is a financial security that represents a promise by a company or government to repay a certain amount, with interest, to the bondholder.
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Characteristics of Bonds
- In finance, bonds are a form of debt: the creditor is the bond holder, the debtor is the bond issuer, and the interest is the coupon.
- Bonds are debt instruments issued by bond issuers to bond holders.
- A bond is a debt security under which the bond issuer owes the bond holder a debt including interest or coupon payments and or a future repayment of the principal on the maturity date.
- Bonds and stocks are both securities, but the major difference between the two is that stockholders have an equity stake in the company, whereas bondholders have a creditor stake in the company.
- In the market for United States Treasury securities, there are three categories of bond maturities:
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Bond Valuation Method
- A bond's value is measured by its sale price, but a business can estimate a bond's price before issuance by calculating its present value.
- The bond's contract rate is another term for the bond's coupon rate.
- If the market rate is greater than the coupon rate, the bonds will probably be sold for an amount less than the bonds' face value and the business will have to report a "bond discount. " The value of the bond discount will be the difference between what the bonds' face value and what the business received when it sold the bonds.
- 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.
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Amortized Cost Method
- To find the amortized acquisition cost the securities are amortized like a mortgage or a bond.
- Z company purchases 40,000 of the 8%, 5-year bonds of Tee Company for $43,412.
- The bonds provide a 6% return, with interested paid semiannually.
- Z Company has both the ability and intent to hold the securities until the maturity date.
- To find the amortized acquisition cost the securities are amortized like a mortgage or a bond.
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Types of Long-Lived Assets
- Intangible assets includes non-physical resources and rights that a firm deems useful in securing an advantage in the marketplace.
- Examples of intangible assets are copyrights, trademarks, patents and computer programs, financial assets-- including such items as accounts receivable, bonds and stocks-- and goodwill.
- They usually consist of three possible types of investments: investments in securities (such as bonds), common stock, or long-term notes.
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Redeeming at Maturity
- The journal entry to record the retirement of a bond: Debit Bonds Payable & Credit Cash.
- A maturity date is the date when the bond issuer must pay off the bond.
- Bonds can be classified to coupon bonds and zero coupon bonds.
- For coupon bonds, the bond issuer is supposed to pay both the par value of the bond and the last coupon payment at maturity.
- Debt securities can be classified as "held-to-maturity," a "trading security," or "available-for-sale. "
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Accounting for Sale of Debt
- Once the company sells the bond, it must report any gains or losses on the sale of the debt.
- This is because, unlike trading securities, the loss from an available-for-sale security is not expected to be realized in the near future.
- A bond certificate issued via the South Carolina Consolidation Act of 1873.
- How the sale of a bond is recorded on a company's books depends on how the debt is initially classified by the acquiring investor.
- Debt securities can be classified as "held-to-maturity," a "trading security," or "available-for-sale. "
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Assessing Fair Value
- Often companies use excess cash to purchase stocks and bonds from other companies.
- If a company purchases stocks or bonds with the intent to sell these items at a future date when they need cash, these are referred to as "Available-for-sale securities".
- A company initially records the "available for sale securities" at cost.
- While holding onto the securities the company must calculate the fair market value for these securities at the end of each subsequent accounting period.
- While holding onto the securities the company must calculate the fair market value for these securities at the end of each subsequent accounting period.
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Key Considerations for the Statement of Cash Flows
- Cash inflows include cash receipts from sales of goods or services; interest received from making loans; dividends received from investments in equity securities; and cash received from the sale of securities that were held for trading purposes, issued by other businesses.
- Securities that are held for trade are generally investments that a business holds for a very short period of time with the intent to sell for a quick gain.
- Securities that are held-to-maturity are those that a business plans to hold onto until the security's term is up.
- An available-for-sale security is an investment that does not qualify as "held-to-maturity" or "trading".
- Transactions include cash received by the company issuing its own capital stock and bonds, as well as any other short- or long-term borrowing it may do.