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Bond Principal Payment: Face Interest Rate Nominal Interest Rate Coupon Interest Rate Contractual Interest Rate

The document defines several terms that all refer to a bond's stated interest rate, including face interest rate, nominal interest rate, coupon interest rate, and contractual interest rate. Throughout the explanation, the term stated interest rate or stated rate will be used. A bond's principal payment refers to the amount that will be paid back at maturity, also known as the face value, par or par value, maturity value or maturity amount, and stated value. The document provides a timeline showing a bond that pays 9% interest semiannually and will repay the $100,000 principal at maturity in 5 years.

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77 views2 pages

Bond Principal Payment: Face Interest Rate Nominal Interest Rate Coupon Interest Rate Contractual Interest Rate

The document defines several terms that all refer to a bond's stated interest rate, including face interest rate, nominal interest rate, coupon interest rate, and contractual interest rate. Throughout the explanation, the term stated interest rate or stated rate will be used. A bond's principal payment refers to the amount that will be paid back at maturity, also known as the face value, par or par value, maturity value or maturity amount, and stated value. The document provides a timeline showing a bond that pays 9% interest semiannually and will repay the $100,000 principal at maturity in 5 years.

Uploaded by

Kylie Tarnate
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
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Download as DOCX, PDF, TXT or read online on Scribd
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he following terms mean the same as a bond's stated interest rate:

face interest rate


nominal interest rate
coupon interest rate
contractual interest rate
Throughout our explanation of bonds payable we will use the term stated interest rate or
stated rate. Usually a bond's stated interest rate is fixed or locked-in for the life of the
bond.

Bond Principal Payment


A bond's principal payment is the dollar amount that appears on the face of a bond. This
is the amount that the issuing corporation must pay to the bondholders on the date that
a bond matures or comes due. Here are some names that refer to a bond's principal
amount:
face value
par or par value
maturity value or maturity amount
stated value
Throughout our explanation we will use these terms interchangeably. In addition, we
assume that the bond's principal amount will be due on a single date.

Timeline for Interest and Principal Payments


It is helpful to prepare a timeline to visualize the cash payments that a corporation
promises to pay its bondholders. The following timeline presents the cash payments of
interest and principal for a 9% $100,000 bond maturing in 5 years:

As the timeline indicates, the corporation will pay its bondholders 10 semiannual interest
payments of $4,500 ($100,000 x 9% x 6/12 of a year). Each of the interest payments
occurs at the end of each of the 10 six-month time periods. When the bond matures at

the end of the 10th six-month period, the corporation must make the $100,000 principal
payment to its bondholders.
http://www.accountingcoach.com/bonds-payable/explanation

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