Bond Interest and Principal Payments

Topics: Finance, Money, Stock Pages: 2 (454 words) Published: May 7, 2014
Bond Interest and Principal Payments
A bond is a type of long-term debt that is issued by a corporation and is purchased by an investor for cash. A formal contract is issued by the corporation that states the legal terms of the bond. The advantages of issuing a bond from a corporation is that the ownership interest of the bondholders will not be diluted and those bonds are available at lower costs than the common stocks available. After a bond is issued by the corporation, the bondholder is promised of: a.Payment of interest every six months at the stated interest rate of the bond b.The face amount or the principal amount after the bond matures on its due date Bond Interest Payments

In a bond, the interests are usually paid semi-annually. This payment structure refers to payment of the interest by the corporation on-half portion of the annual interest after every six month period, till the bond is scheduled to be outstanding. The semi-annual interests are calculated using the following formula: Semi Annual Interest = Face amount of the bond X Stated Annual Interest Rate X (6/12 of a year) Bond interest payments or the bond’s stated interest are also referred to by using terms such as coupon interest rates, face interest rates, nominal interest rates, or contractual interest rates. The stated interest rate is usually found to be fixed for life till the bond matures. Bond Principal Payments

In a bond, the principal amount is the one that is shown primarily on the bond. This amount is the one that the corporation must pay back to the bondholders on the bond’s maturation day . A few of the terms that are used to refer to the principal amount payment of the bond include stated value, par or par value, maturity value or maturity amount, and face value. Timeline for Interest and Principal Payments

In order to calculate and keep a check on the cash payments that are made by a corporation to the bond-holders as promised by them, it is necessary to prepare a...
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