Given the following spot rates, calculate the value of a 3-year, 6% annual-coupon bond. Spot rates: 1-year: 5% 2-year: 5% 3-year: 6% A. $1,001.56 B. $1,044.73 C. $1,094.56 D. $1,114.29
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:
Given the following spot rates, calculate the value of a 3-year, 6% annual-coupon bond.
Spot rates:
- 1-year: 5%
- 2-year: 5%
- 3-year: 6%
$1,001.56
$1,044.73
$1,094.56
$1,114.29
Time period is 3 years
Annual Coupon rate is 6%
To Find:
- Value of the bond
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