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Zero Coupon Bonds definitions Flashcards

Zero Coupon Bonds definitions
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  • Zero Coupon Bond
    A debt security sold at a deep discount, making no periodic interest payments, with a single payment of face value at maturity.
  • Face Value
    The principal amount stated on a bond, repaid to the holder at maturity, regardless of the issue price.
  • Stated Interest Rate
    The rate printed on the bond certificate, used to calculate periodic interest payments, which is 0% for zero coupon bonds.
  • Market Interest Rate
    The prevailing rate in the market for similar bonds, influencing the bond's issue price relative to its face value.
  • Discount
    The difference between a bond's face value and its lower issue price, representing additional yield to investors.
  • Bonds Payable
    A liability account reflecting the total face value of bonds owed by the issuer, regardless of cash received.
  • Discount on Bonds Payable
    A contra-liability account showing the total unamortized discount, reducing the carrying value of bonds payable.
  • Carrying Value
    The net amount at which bonds are reported on the balance sheet, calculated as face value minus unamortized discount.
  • Amortization
    The process of gradually reducing the bond discount over the bond's life, increasing interest expense each period.
  • Maturity Date
    The specified date when the bond's principal is repaid to investors and the bond obligation ends.
  • Principal Payment
    The lump sum paid to bondholders at maturity, equal to the bond's face value.
  • Interest Expense
    The cost recognized by the issuer each period, reflecting the amortized discount as no cash interest is paid.
  • Journal Entry
    An accounting record documenting the issuance, amortization, and repayment transactions related to bonds.
  • Liability Section
    The part of the balance sheet where bonds payable and related accounts are reported.
  • Par Value Bond
    A bond issued at a price equal to its face value, typically when the stated and market rates are equal.