zero coupon bond vs par bond

[daveh]

compare to company issue par bond, company issues zero coupon bond will overstate interest expense? T or F? why?

Thanks

 

[djjk1]

True. For a discount bond, the interest exp is greater than the coupon (which is nil for a ZCB).

note though, that for a ZCB, the cash flow from ops is severely overstated as no interest payment (coupon) hits cash. the entire amount hits CFF at the maturity of the bond.



Edited 1 time(s). Last edit at Friday, December 5, 2008 at 12:05AM by djjk1.