Calculate the Macaulay duration of an 8 percent, $1,000 par bond that matures in four years if the bond’s YTM is 10 percent and interest is paid semiannually. Calculate this bond’s modified duration. Assuming the bond’s YTM goes from 10 percent to 9.5 percent, calculate an estimate of the price change
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:
- Calculate the Macaulay duration of an 8 percent, $1,000 par bond that matures in four
years if the bond’s YTM is 10 percent and interest is paid semiannually.
- Calculate this bond’s modified duration.
- Assuming the bond’s YTM goes from 10 percent to 9.5 percent, calculate an estimate of the price change.
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