California Resource Corporation has a bond outstanding with a coupon interest rate of 6 percent that will mature in 7 years. The investors who have purchased the bonds are requiring a rate of return of 11.41 percent! Compute the value of the bonds for the current investors. Earning a 11.41 percent rate of return is fantastic-sure beats government Treasury bond rates. So why would many investors choose not to invest in these bonds unless they can receive a really high rate of return for bonds?
California Resource Corporation has a bond outstanding with a coupon interest rate of 6 percent that will mature in 7 years. The investors who have purchased the bonds are requiring a rate of return of 11.41 percent! Compute the value of the bonds for the current investors. Earning a 11.41 percent rate of return is fantastic-sure beats government Treasury bond rates. So why would many investors choose not to invest in these bonds unless they can receive a really high rate of return for bonds?
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
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Concept explainers
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:
Question
California Resource Corporation has a bond outstanding with a coupon interest
rate of 6 percent that will mature in 7 years. The investors who have purchased
the bonds are requiring a rate of return of 11.41 percent! Compute the value of
the bonds for the current investors. Earning a 11.41 percent rate of return is
fantastic-sure beats government Treasury bond rates. So why would many
investors choose not to invest in these bonds unless they can receive a really high
rate of return for bonds?
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