Question

1. what is the main difference between notes payable and bonds payable?

2. what is the main difference between a bond and a share of stock?

4. what is a bond indenture? what provisions are usually included in it?

6. what are the contract rate and the market rate for bonds?

7. what factors affect the market rates for bonds?

12. describe the debit-to-equity ratio and explain how creditors and owners would use this ratio to evalute a company's risk?

Answer 1

Ans1:- Note payable :-

• Notes payable accounts that are maintained by the business owner represent the long-term liabilities.

• These liabilities are usually in terms of a loan that has been taken out to fund business development, research or daily business.

• The loans taken out for these purposes are generally lower in amount.

-> bond payable :- • Bonds are a long-term debt obligation that the business owner has to its lenders.

• A bond issue allows the business to gather either long- or short-term loans from both individual and institutional investors.

Ans (2):- SHARES OF STOCK :- • Stocks, or shares of stock, represent an ownership interest in a corporation.

• Stocks pay dividends to the owners, but only if the corporation declares a dividend.

• stock holder are the owner of the company.

-> Bonds :- • Bonds are a form of long-term debt in which the issuing corporation promises to pay the principal amount at a specific date.

• bonds are issued by Government institutions, companies and financial institutions, etc.

• Bondholders are the lenders to the company.

Ans 4:- BOND INDENTURE :- • A bond indenture is a legal document or contract between the bond issuer and the bondholder.

• The bond indenture is created during the bond issuing process when bond issuers are receiving approval.

• The bond indenture also includes the details of the rights of ownership as well as the rights of the bondholder to receive interest payments and principle payments in the future.

Ans 6 ):- contract rate for bond :- • Contract rate for bonds is the stated rate or coupon rate listed on the face of the bond.

• This is the annual cash interest bond holder would pay- but it might not be the interest expense bond holder would record.

MARKET RATE FOR BONDS :- • The amount paid by investors for a bond, whether purchased through a direct auction, through an underwriter or from another investor is the bond's market price.

• The market price of a bond is determined using the current interest rate compared to the interest rate stated on the bond.