compare zero coupon bond with interest bearing bond, why zero coupon bond have higher balance sheet liability? for zero coupon bond, I think it has lower, and discount has been amortized over time, so the balance sheet liability keep increase unto to its par at the maturity. is my understanding correct? Thanks.
hw0799 Wrote: ------------------------------------------------------- > why zero coupon bond have higher balance sheet > liability? Higher than what? Higher than a bond issued at what date and at what yield? At the same yield, a zero will have a lower amount than a bond issued at par with the same yield. BUT, the zero has lower initial proceeds to make up for the fact that no interest is paid along the way. > > for zero coupon bond, I think it has lower, and > discount has been amortized over time, so the > balance sheet liability keep increase unto to its > par at the maturity. is my understanding correct? Yes
All else equal, a zero coupon bond will represent a smaller balance sheet liability than a coupon bond. This is because the balance sheet liability is equal to the present value of the payments on the bond, discounted at the market rate of interest. If there are no coupon payments, and everything else is equal, the present value, and hence the liability, is lower.
all else being equal, a discount debt compare with a par debt, for example. I think the balance sheet liability for discout debt will be lower than the par debt. Super I Wrote: ------------------------------------------------------- > hw0799 Wrote: > -------------------------------------------------- > ----- > > > why zero coupon bond have higher balance sheet > > liability? > > Higher than what? Higher than a bond issued at > what date and at what yield? At the same yield, > a zero will have a lower amount than a bond issued > at par with the same yield. BUT, the zero has > lower initial proceeds to make up for the fact > that no interest is paid along the way. > > > > > for zero coupon bond, I think it has lower, and > > discount has been amortized over time, so the > > balance sheet liability keep increase unto to > its > > par at the maturity. is my understanding > correct? > > > Yes