A company has liabilities of $1200 and $2450 due at the end of years 1 and 2 respectively. The only investments available are 1-year 5% annual coupon bonds and 2- year 6% annual coupon bonds and both redeemable at par. Given an annual effective rate of 3%, how much should the company invest in the 1- year bond in order to exactly (absolutely) match the assets and liabilities. Possible Answers : A 981.34 B 1010.78 C 1027.65 D 1030.41
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 company has liabilities of $1200 and
$2450 due at the end of years 1 and 2
respectively. The only investments available
are 1-year 5% annual coupon bonds and 2-
year 6% annual coupon bonds and both
redeemable at par.
Given an annual effective rate of 3%, how
much should the company invest in the 1-
year bond in order to exactly (absolutely)
match the assets and liabilities.
Possible Answers :
A 981.34
B 1010.78
C 1027.65
D 1030.41](/v2/_next/image?url=https%3A%2F%2Fcontent.bartleby.com%2Fqna-images%2Fquestion%2F7fc05d03-5d66-4d49-a842-7fcd228357a4%2F37bec6d1-218b-4e23-b6a5-f9bae090283a%2Fgl0rul5_processed.jpeg&w=3840&q=75)
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