Match these terms with their definitions.
-A contract that gives one party the right to use an asset that belongs to another party.
A)Bond
B)Contract, coupon, stated rate
C)Discount
D)Effective interest rate method
E)Face value, par value, principal
F)Interest amortization
G)Lease
H)Lessee
I)Lessor
J)Leverage
K)Long-term debt
L)Market rate, yield
M)Maturity
N)Premium
O)Straight-line method

Question

Quizplus · Accepted Answer

Here's a brief explanation of the other terms for clarity:
A) Bond - A debt security, under which the issuer owes the holders a debt and is obliged to pay them interest and/or to repay the principal at a later date, termed maturity.
B) Contract, coupon, stated rate - These terms relate to the fixed interest rate paid on a bond (the coupon or stated rate), and the contract is the legal agreement of the bond.
C) Discount - This can refer to the difference between the lower purchase price of a bond and its face value, or to a reduction in the price of an asset or service.
D) Effective interest rate method - An accounting practice used to allocate the bond premium or discount over the period until the bond's maturity.
E) Face value, par value, principal - The amount of money a bond will pay back at maturity; it's also the reference amount for calculating interest payments.
F) Interest amortization - The process of spreading out a loan's interest payments over the life of the loan.
H) Lessee - The party that receives the right to use an asset under a lease agreement.
I) Lessor - The party that owns the asset and grants the right to use it under a lease agreement.
J) Leverage - The use of borrowed capital (debt) to increase the potential return of an investment.
K) Long-term debt - Debt that is due for repayment in more than one year's time.
L) Market rate, yield - The current rate of return in the market on a debt instrument such as a bond, often compared to the coupon rate to determine if the bond is trading at a premium or discount.
M) Maturity - The date on which a debt instrument such as a bond or loan is due to be repaid.
N) Premium - An amount paid that is above the face value of a bond or other security.
O) Straight-line method - A method of allocating an equal amount of a bond premium or discount to interest expense over each period of the bond's life.

Match These Terms with Their Definitions