Borrower Inc. is currently estimating the value of its bonded indebtedness with the following information: Real risk-free rate is currently estimated at 4.25% The expected inflation premium is at 1.75% Considering the current creditworthiness of Borrower Inc., it's credit spread is estimated at: 2.0% for 3-year maturity instruments 3.0% for 4-year maturity instruments 4.0% for 5-year maturity instruments Borrower Inc. have the following issued bonded indebtedness: Bond A carries a 5-year tenor with a face value of Php500,000 issued 2 years ago carrying a coupon of 8.0% per annum. Bond B carries a 5-year tenor with a face value of Php600,000 issued a year ago carrying a coupon of 10.0% per annum. Bond C carries a 8-year tenor with a face value of Php400,000 issued 3 years ago carrying a coupon of 11.5% per annum. 1. What is the value of Bond A? Clue - correct answer should have a string of number "00" appearing in sequence in any unit until two decimal points. 2. What is the value of Bond B? Clue - correct answer should have a string of number "94" appearing in sequence in any unit until two decimal points. 3. What is the value of Bond C? Clue - correct answer should have a string of number "72" appearing in sequence in any unit until two decimal points.

Essentials Of Investments
11th Edition
ISBN:9781260013924
Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Chapter1: Investments: Background And Issues
Section: Chapter Questions
Problem 1PS
icon
Related questions
Question
100%

Borrower Inc. is currently estimating the value of its bonded indebtedness with the following information:

  • Real risk-free rate is currently estimated at 4.25%
  • The expected inflation premium is at 1.75%
  • Considering the current creditworthiness of Borrower Inc., it's credit spread is estimated at:
    • 2.0% for 3-year maturity instruments
    • 3.0% for 4-year maturity instruments
    • 4.0% for 5-year maturity instruments

Borrower Inc. have the following issued bonded indebtedness:

  • Bond A carries a 5-year tenor with a face value of Php500,000 issued 2 years ago carrying a coupon of 8.0% per annum.
  • Bond B carries a 5-year tenor with a face value of Php600,000 issued a year ago carrying a coupon of 10.0% per annum.
  • Bond C carries a 8-year tenor with a face value of Php400,000 issued 3 years ago carrying a coupon of 11.5% per annum.

1. What is the value of Bond A? Clue - correct answer should have a string of number "00" appearing in sequence in any unit until two decimal points.

2. What is the value of Bond B? Clue - correct answer should have a string of number "94" appearing in sequence in any unit until two decimal points.

3. What is the value of Bond C? Clue - correct answer should have a string of number "72" appearing in sequence in any unit until two decimal points.

Expert Solution
steps

Step by step

Solved in 3 steps with 3 images

Blurred answer
Similar questions
  • SEE MORE QUESTIONS
Recommended textbooks for you
Essentials Of Investments
Essentials Of Investments
Finance
ISBN:
9781260013924
Author:
Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:
Mcgraw-hill Education,
FUNDAMENTALS OF CORPORATE FINANCE
FUNDAMENTALS OF CORPORATE FINANCE
Finance
ISBN:
9781260013962
Author:
BREALEY
Publisher:
RENT MCG
Financial Management: Theory & Practice
Financial Management: Theory & Practice
Finance
ISBN:
9781337909730
Author:
Brigham
Publisher:
Cengage
Foundations Of Finance
Foundations Of Finance
Finance
ISBN:
9780134897264
Author:
KEOWN, Arthur J., Martin, John D., PETTY, J. William
Publisher:
Pearson,
Fundamentals of Financial Management (MindTap Cou…
Fundamentals of Financial Management (MindTap Cou…
Finance
ISBN:
9781337395250
Author:
Eugene F. Brigham, Joel F. Houston
Publisher:
Cengage Learning
Corporate Finance (The Mcgraw-hill/Irwin Series i…
Corporate Finance (The Mcgraw-hill/Irwin Series i…
Finance
ISBN:
9780077861759
Author:
Stephen A. Ross Franco Modigliani Professor of Financial Economics Professor, Randolph W Westerfield Robert R. Dockson Deans Chair in Bus. Admin., Jeffrey Jaffe, Bradford D Jordan Professor
Publisher:
McGraw-Hill Education