PV of Bonds – BEC Question

CPA Exam Review CPA Exam Forum Off-Topic & CPA Exam Misc OT: Off Topic PV of Bonds – BEC Question

This topic contains 3 replies, has 2 voices, and was last updated by  12tang 6 days, 2 hours ago.

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  • #2698365

    say
    Participant

    In calculating the PV of a bond at a certain point in time, do you discount it by the number of periods left to maturity, or the total number of periods of the bond? Say there are a total of 5 periods, but 3 periods have passed. Would it be discounted by the factor of the 5 or the 2?

    #2698395

    12tang
    Participant

    Periods left to maturity. As bonds mature, you amortize them, such that the balance sheet reflects their current value via amortization. If you did the original term for valuing, you'd be over-valued on the Balance sheet.

    2015:

    FAR - 84

    BEC/AUD/REG - Let life get in the way...

    2018/2019:

    BEC - 80

    FAR -

    AUD -

    REG -

    #2698398

    say
    Participant

    What if it is to assess the market value of the bond at the present? Not considering what it is recorded for on the balance sheet, but if you were to sell that bond out in the market at that time?

    #2698431

    12tang
    Participant

    If you reclassed the held to maturity bond to a trading security, you'd present it at Fair value. The terms of the bond itself do not determine fair value. The market will dictate what you report the bond at. So the effective interest rate (not stated) will be used and the remaining periods of the bond would be used to help you find the PV factor.

    2015:

    FAR - 84

    BEC/AUD/REG - Let life get in the way...

    2018/2019:

    BEC - 80

    FAR -

    AUD -

    REG -

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