Bond X is a premium bond making semiannual payments. The bond pays a coupon rate of 7 percent, has a YTM of 5 percent, and has 17 years to maturity. Bond Y is a discount bond making semiannual payments. This bond pays a coupon rate of 5 percent, has a YTM of 7 percent, and also has 17 years to maturity. The bonds have a $1,000 par value. What is the price of each bond today? If interest rates remain unchanged, what do you expect the price of these bonds to be one year from now? In seven years? In 12 years? In 16 years? In 17 years? (Do not round intermediate calculations and round your answers to 2 decimal places, e.g., 32.16.)
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:
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Bond X is a premium bond making semiannual payments. The bond pays a coupon rate of 7 percent, has a YTM of 5 percent, and has 17 years to maturity. Bond Y is a discount bond making semiannual payments. This bond pays a coupon rate of 5 percent, has a YTM of 7 percent, and also has 17 years to maturity. The bonds have a $1,000 par value. |
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What is the price of each bond today? If interest rates remain unchanged, what do you expect the price of these bonds to be one year from now? In seven years? In 12 years? In 16 years? In 17 years? (Do not round intermediate calculations and round your answers to 2 decimal places, e.g., 32.16.) |
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