Peer Review

Term Bond Valuation Tutorial (Premium Scenario)

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Reviewed:: Dec 5, 2022 by Business

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Ratings

Overall Rating:

Content Quality:

Effectiveness:

Ease of Use:

Overview:

This is a problem-based tutorial that provides students with an opportunity to practice applying time value of money concepts. A short case exercise is provided in Microsoft Word presenting a simple bond issuance scenario for a fictitious company, along with 18 questions ranging from multiple choice, short answer and some calculation-based questions requiring the use of present-value tables, provided with the learning material.

The case solutions are provided for the instructor, showing the calculations using a financial calculator, however, Microsoft Excel could also be used. This case illustrates a term bond issued at a premium, and students practice the calculations for determining the present value, effective interest rate, and the accounting journal entries for bond issuance, redemption and principal and interest payments.

Type of Material:

Case Study

Tutorial

Recommended Uses:

Educational resource to be incorporated into classroom use in the form of in-class presentation/open discussion and homework assignments in the area of Accounting (Bonds). Recommended as assigned homework or in-class case, either for individual or team assignment.

Technical Requirements:

Web Browser and word processor, Microsoft Word compatible. Microsoft Edge, version 44 and Microsoft Word and Excel 365. Microsoft Excel or a financial calculator for present value calculations is required.

Identify Major Learning Goals:

As a result of completing this tutorial, students will be able to:

Determine whether the bond will be sold at a premium or discount.
Calculate the present value of a term bond.
Account for bonds when they are sold and redeemed at maturity.
Account for the semi-annual interest payments made by the borrower.

Target Student Population:

College Lower Division, College Upper Division

Prerequisite Knowledge or Skills:

The following perquisite knowledge would be helpful but not mandatory for students using this material:

Basic algebra including manipulating fractions and exponentiation.
Exposure to time value of money concepts, namely, determining the present value of a lump sum and the present value of an annuity.
An understanding of the following terms related to long term debt financing: term bonds, principal, discount, premium, par or face value, stated or contractual rate of interest, market rate of interest, maturity date, compounding periods per year, ordinary annuity and straight-line amortization.
How to record journal entries.
Familiarity with Microsoft Excel time value of money formulas, or a financial calculator

Content Quality

Rating:

Strengths:

Case scenario is a very clear illustration of a simple bond issuance demonstrating the basic calculations and accounting journal entries associated with issuance, principal and interest payments and redemption
Activity provides some links to additional content, but no research-based material
Learning activity is flexible and self-contained, and can be deployed as an in-class exercise, individual or team assignment

Concerns:

The solutions illustrate the use of present value tables along with the calculations using a financial calculator, which may seem out-of-date for some students
The exercise illustrates the basic calculations for bond accounting, but does not summarize the concept or show its link to the overall concepts surrounding bond accounting

Potential Effectiveness as a Teaching Tool

Rating:

Strengths:

This case would be easy to integrate into curriculum assignments in introductory accounting or finance covering bond accounting
Flexible format can be used in-class for assigned as individual or team case, with the instructor serving as coach/moderator
The questions provided can be used to measure student learning outcomes as a graded assignment

Concerns:

As a stand-alone assignment, the material does not demonstrate relationships between the various concepts of bond accounting, so it is recommended that the instructor augment the material with textbook reading, lecture or directed self-study.

Ease of Use for Both Students and Faculty

Rating:

Strengths:

This case study is easy to use with clear instructions and solutions provided to assist the instructor
The case is a realistic bond issuance scenario that is engaging and will challenge students learning about time value of money and basic bond accounting
Material does require Microsoft Excel or a financial calculator, but can be used effectively even without internet, or in remote environment

Concerns:

Case scenario is not meant to be interactive, however, the instructor could moderate in-class or via distance learning to engage students in teams or as in-class exercise

Other Issues and Comments:

Additional information provided the author relating to context for use:

This tutorial allows students to apply time value of money concepts to bond financing. Students must analyze a scenario and apply the correct concepts to calculate the correct results. The tutorial is administered after students have participated in a PowerPoint enhanced lecture on the topic. The tutorial takes students through the computations and analysis in a step by step by fashion by asking questions, to which responses must be made. Students may consult each other for help while the instructor acts as a coach confirming correct responses, answering questions, and asking questions to help students analyze the problem.

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