Company A issues a 4-year 7% p.a. semi-annual coupon bond with a face value of $2,000. At issue, the effective annual bond yield is 9%. One year after issue, the bond yield increases to 15%. If you had bought this bond at issue and sold it one year later just after receiving the coupon, what would be your total return over this period?
Company A issues a 4-year 7% p.a. semi-annual coupon bond with a face value of $2,000. At issue, the effective annual bond yield is 9%. One year after issue, the bond yield increases to 15%. If you had bought this bond at issue and sold it one year later just after receiving the coupon, what would be your total return over this period?
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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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
Company A issues a 4-year 7% p.a. semi-annual coupon bond with a face value of $2,000.
At issue, the effective annual bond yield is 9%. One year after issue, the bond yield increases to 15%.
If you had bought this bond at issue and sold it one year later just after receiving the coupon, what would be your total return over this period?
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