Consider two bonds A and B with payments , where . Bond A has just been issued. Its face value is $1,000, it bears coupon rate of 7%, and it will mature in 10 years. Bond B was issued 5 years ago. This bond has $1,000 face value and bears a 13% coupon rate. When issued, this bond had a 15-year maturity, so its remaining maturity is 10 years. The yield to maturity for both bonds is 8% (see Cell B2 in the spreadsheet below). Using the Excel spreadsheet below write down and explain the complete Excel formula on how we estimated the bond A and bond B price in Cells B17 and E17, respectively:
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:
Consider two bonds A and B with payments , where . Bond A has just been issued. Its face value is $1,000, it bears coupon rate of 7%, and it will mature in 10 years. Bond B was issued 5 years ago. This bond has $1,000 face value and bears a 13% coupon rate. When issued, this bond had a 15-year maturity, so its remaining maturity is 10 years. The yield to maturity for both bonds is 8% (see Cell B2 in the spreadsheet below).
- Using the Excel spreadsheet below write down and explain the complete Excel formula on how we estimated the bond A and
bond B price in Cells B17 and E17, respectively:
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