A bond has 5 years to mature. Its face value is 1500 and pays a coupon of 12% coupon is paid on a semi-annual basis. The market interest rate is 14% What is the duration of this bond? Assume that the interest rate falls by 0.5% by how much will the bond price increase? Compute the new price of the bond
A bond has 5 years to mature. Its face value is 1500 and pays a coupon of 12% coupon is paid on a semi-annual basis. The market interest rate is 14% What is the duration of this bond? Assume that the interest rate falls by 0.5% by how much will the bond price increase? Compute the new price of the bond
Essentials Of Investments
11th Edition
ISBN:9781260013924
Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Chapter1: Investments: Background And Issues
Section: Chapter Questions
Problem 1PS
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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:
Question
- A bond has 5 years to mature. Its face value is 1500 and pays a coupon of 12% coupon is paid on a semi-annual basis. The market interest rate is 14%
- What is the duration of this bond?
- Assume that the interest rate falls by 0.5% by how much will the
bond price increase? - Compute the new price of the bond
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