3. Suppose the US government issued a 10 year, 10% semi-annual coupon bond on Jan 15, 2010. The face value is $1000, due on Jan. 15, 2020. a) On Jan. 16, 2016, the bond is traded on the secondary market for $800, what is the implied YTM on the bond? b) Also on Jan. 16, 2016, the US government issued a new bond, with 4 years to maturity, 7% semi-annual coupon rate, and face value of $1000. If the new bond and old bond have the same risk, what would be the YTM of the new bond? What should be the price of the new bond?
Debenture Valuation
A debenture is a private and long-term debt instrument issued by financial, non-financial institutions, governments, or corporations. A debenture is classified as a type of bond, where the instrument carries a fixed rate of interest, commonly known as the ‘coupon rate.’ Debentures are documented in an indenture, clearly specifying the type of debenture, the rate and method of interest computation, and maturity date.
Note Valuation
It is the process to determine the value or worth of an asset, liability, debt of the company. It can be determined by many processes or techniques. Many factors can impact the valuation of an asset, liability, or the company, like:
3. Suppose the US government issued a 10 year, 10% semi-annual coupon bond on Jan 15, 2010. The face value is $1000, due on Jan. 15, 2020.
a) On Jan. 16, 2016, the bond is traded on the secondary market for $800, what is the implied YTM on the bond?
b) Also on Jan. 16, 2016, the US government issued a new bond, with 4 years to maturity, 7% semi-annual coupon rate, and face value of $1000. If the new bond and old bond have the same risk, what would be the YTM of the new bond? What should be the price of the new bond?
Trending now
This is a popular solution!
Step by step
Solved in 2 steps with 2 images
