A 5-year long-term corporate bond yields 10%. The real risk-free rate is 2%. Inflation is forecasted to average 2% a year for the next 5 years. The maturity risk premium is estimated to be 1%(t-3), where t is the maturity of the bond. What will be the nominal rate of the long-term 5-year government security?
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:
A 5-year long-term corporate bond yields 10%. The real risk-free rate is 2%. Inflation is
What will be the nominal rate of the long-term 5-year government security?
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