Glossary – Chapter 13

• annuitiesStreams of level (i.e., the same amount each period) payments occurring on regular intervals
• bonds payableAn obligation divided into transferable units requiring the issuer to make periodic interest payments and an eventual repayment of the face amount
• callable bondA bond that provides the issuer an option to reacquire the bonds before scheduled maturity at a preset price
• commitmentsPromises to engage in some future action; not necessarily creating a recordable accounting liability but potentially necessitating enhanced disclosure
• compound interestInterest calculations that provide for periodic inclusion of accumulated interest into the base on which interest is calculated; "interest on the interest"
• convertible bondA bond that may be converted by the holder into stock of the issuing company
• coupon bondA bond that has detachable coupons that are exchanged for interest payments; historically popular but falling into disuse
• debenture bondA bond that lacks specific collateral; payment is only assured by the general faith and creditworthiness of the issuer
• effective-interest amortizationA theoretically preferable method for amortizing premiums and discounts on bonds; interest expense is a constant percentage of the bonds ever-changing carrying value
• future valueThe amount to which an interest-earning amount is expected to grow over a stipulated time period at a given interest rate
• junk bondA bond that is issued by a company of low credit worthiness, and entails substantial risk of nonpayment; generally offers a high interest rate to compensate for the high risk
• nonredeemable bondA bond that cannot be paid off before scheduled maturity
• nonrefundable bondA bond that cannot be paid off with the proceeds of a new debt issue
• present valueThe calculated value today of an amount to be received in the future, based upon an assumed interest rate (the reciprocal of future value)
• registered bondA bond for which ownership records are maintained, and interest is paid to the registered owner
• secured bondA bond that provides specific assets as collateral to help assure the payment stream
• serial bondA bond issue that has multiple repayment dates, rather than the entire issue maturing at one fixed maturity date
• simple interestInterest calculations that do not provide for periodic inclusion of accumulated interest into the base on which interest is calculated
• sinking fund bondA bond issue that requires periodic setting aside of monies into a separate fund to provide for eventual repayment of the debt at maturity