How bond issued at premium or discount affect the cash flows? 1min
discount bonds, will have higher interest expense, hence lower your operating cash flow. premium bonds will have lower interest expense hence increase your operating cash flow. once you know that, you can determine the ratios. lol
discount CFO - overstated CFF - understated Interest Expense will increaseover time (Bring back to par) Premium CFO - Understated CFF - Overstated Interest expense will decrease over time (Bring Down to par)
true that being that guy.
No Pepp, I think your right just explained it a little different. Cause if you “lower your operating cash flow” wont it be “overstated”?
I know. But what you know is more practical. What I know while true, one still has to figure things out. I am tired of the way cfai is testing this deductive logic for FSA section. FED UP! really!! getting my mind all topsy turvy.
hmm i beg to differ peppe, bonds issued at premium have higher interest expense and bonds issued at discount have lower interest expense.
beingthatguy Wrote: ------------------------------------------------------- > discount > > CFO - overstated > CFF - understated > > Interest Expense will increaseover time (Bring > back to par) > > Premium > > CFO - Understated > CFF - Overstated > > Interest expense will decrease over time (Bring > Down to par) This is the correct answer.
premium bonds overstate CFF, understate CFO discount bonds understate CFF, overstate CFO