For #4, 5 & 6, we use this same bond: A TIPS bond has a coupon rate of 4%, with semi- annual coupon payments and 1.5 years to maturity for an initial principal of $1,000. Assume the semi-annual inflation rates are 1%, 2%, 3% and for the 3 semi-annual periods (these rates are already 6 month rates). Noticed, all the CF are at the end of the semi-annual. 4. Calculate the bond’s cashflow at time t=1.5, round to nearest cents 5. Assume the bond BEY is 4.75%. Joe 5,000 bonds so how much will he have to pay, round to nearest cents? 6. Assume the require returns are 3%, 2% & 1% in the respective 1st, 2nd and 3rd semiannuals (these rate are already 6-month rates). What is the price of this bond, round to nearest cents?
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:
For #4, 5 & 6, we use this same bond: A TIPS bond has a coupon rate of 4%, with semi- annual coupon payments and 1.5 years to maturity for an initial principal of $1,000. Assume the semi-annual inflation rates are 1%, 2%, 3% and for the 3 semi-annual periods (these rates are already 6 month rates). Noticed, all the CF are at the end of the semi-annual.
4. Calculate the bond’s cashflow at time t=1.5, round to nearest cents
5. Assume the bond BEY is 4.75%. Joe 5,000 bonds so how much will he have to pay, round to nearest cents?
6. Assume the require returns are 3%, 2% & 1% in the respective 1st, 2nd and 3rd semiannuals (these rate are already 6-month rates). What is the price of this bond, round to nearest cents?
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