A bond having a face value (F) of Rs.100 is selling at (B) Rs.95 in the market. It pays coupon semi-annually and coupon rate is 10% per annum. It has just paid the last coupon on yesterday and there are 2 more coupon payments left. The first one will be paid exactly 6 months from now and last one exactly 1 year from now. The Face Value will be repaid at maturity along with last coupon payment. a) Draw the cash flow diagram demarking the inflows and outflows with timings. b) What is the Current Yield of the bond? c) What is the Yield to Maturity of the bond? d) What will be the new bond price if the yield decreases by 50 basis points?
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 having a face value (F) of Rs.100 is selling at (B) Rs.95 in the market. It pays coupon semi-annually and coupon rate is 10% per annum. It has just paid the last coupon on yesterday and there are 2 more coupon payments left. The first one will be paid exactly 6 months from now and last one exactly 1 year from now. The Face Value will be repaid at maturity along with last coupon payment.
a) Draw the cash flow diagram demarking the inflows and outflows with timings.
b)
What is the Current Yield of the bond?
c)
What is the Yield to Maturity of the bond?
d)
What will be the new
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