For the following investments, identify whether they are: 1. Trading debt securities. 2. Available-for-sale debt securities. 3. Held-to-maturity debt securities. 4. None of the above. Each case is independent of the other. a. A bond that will mature in 4 years was bought 1 month ago when the price dropped. As soon as the value increases, which is expected next month, it will be sold. b. 10% of the outstanding stock of Farm-Co was purchased. The company is planning on eventually getting a total of 30% of its outstanding stock. c. Bonds were purchased in December of this year. The bonds are expected to be sold in January of next year. d. Bonds that will mature in 5 years are purchased. The company would like to hold them until they mature, but money has been tight recently and they may need to be sold. e. Preferred stock was purchased for its constant dividend. The company is planning to hold the preferred stock for a long time. f. A bond that matures in 10 years was purchased. The company has committed the money for an expansion project planned 10 years from now.
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 the following investments, identify whether they are:
1. Trading debt securities.
2. Available-for-sale debt securities.
3. Held-to-maturity debt securities.
4. None of the above.
Each case is independent of the other.
a. A bond that will mature in 4 years was bought 1 month ago when the price dropped. As soon as the value increases, which is expected next month, it will be sold.
b. 10% of the outstanding stock of Farm-Co was purchased. The company is planning on eventually getting a total of 30% of its outstanding stock.
c. Bonds were purchased in December of this year. The bonds are expected to be sold in January of next year.
d. Bonds that will mature in 5 years are purchased. The company would like to hold them until they mature, but money has been tight recently and they may need to be sold.
e.
f. A bond that matures in 10 years was purchased. The company has committed the money for an expansion project planned 10 years from now.
Trending now
This is a popular solution!
Step by step
Solved in 2 steps
