[Ralphie Dos Nachos]

This is probably a no brainer but for some reason bonds just stump me and I can’t think of it logically lol.

Why would the issuer want a discount if that means they are getting less money than the face amount?

ex. Cash 120,000
Discount 120,000
Bonds Payable 120,000

[Anonymous]

First, I think your debits are credits are out of line.

Cash 100
B Disc 20
Bonds Pay 120

The issuer would have to issue the bonds at a discount because the stated rate (cpn rate) is less than the market rate. Meaning the interest that will be earned on the bonds are less than what the market is commanding, ie going rate.

Hope this helps! I sit for FAR next week

[Amortized and Energized]

When a company decides to issue bonds to raise capital, there is usually a fair bit of time between when the announce it and when they actually release them. So let's say the company is going to issue bonds at 5% and the going market return on like kind investments is 5%. So far so good. But now in the time before we release the bonds, like kind investments are yielding 8% and our bonds are only paying coupons of 5%. How do we attract investors when there is a better opportunity for them? We discount the purchase price of our bond so that coupon payments yield 8% to the investors. Now we can still attract investors to putchase our bond.

Likewise if the market is yielding 3%, everybody will be rushing to buy our bonds because they are returning more than like kind investments are. Demand is high!!!!! We will issue our bonds at a premium so that the returns to investors yields what the market does.

FAR - Aug 2015 (58), Feb 2016 (81)
u
BEC - May 2016 (79)
AUD - Jul 2016
REG - Aug 2016

[Amortized and Energized]

Guess I shouldnt have said the coupons so much as the overall investment yield

FAR - Aug 2015 (58), Feb 2016 (81)
u
BEC - May 2016 (79)
AUD - Jul 2016
REG - Aug 2016

[Author]

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