A bond has two years to maturity. Assume that time is measured in years and that coupons are paid annually. The annual coupon rate is 7% per annum and the face value is 1,000. The price of the bond is 975. The two-year spot rate is 1.25 times the one-year spot rate. What is the YTM of a bond which has the same level of risk but pays a coupon of 7.6% per annum?
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 bond has two years to maturity. Assume that time is measured in years and
that coupons are paid annually. The annual coupon rate is 7% per annum and
the face value is 1,000. The price of the bond is 975. The two-year spot rate is
1.25 times the one-year spot rate.
What is the YTM of a bond which has the same level of risk but pays a
coupon of 7.6% per annum?
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