A firm has an outstanding perpetual bond with a par value of $1,000 that can be called in one year at a call price of $1,260. The bond has a coupon rate of 8%, paid quarterly, and has a yield to maturity of 8%. In one year the yield to maturity may change. There is a 23% chance that the yield to maturity will increase to 10%, a 30% chance that the yield to maturity decreases to 5.9%, and a 47% chance that the yield to maturity will not change. What is the current market price of the bond? Enter the bond price rounded to two decimal places (E.g., 1050.55).
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 firm has an outstanding perpetual bond with a par value of $1,000 that can be called in one year at a call price of $1,260. The bond has a coupon rate of 8%, paid quarterly, and has a yield to maturity of 8%. In one year the yield to maturity may change. There is a 23% chance that the yield to maturity will increase to 10%, a 30% chance that the yield to maturity decreases to 5.9%, and a 47% chance that the yield to maturity will not change. What is the current market price of the bond?
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