Grummon Corporation has just issued zero-coupon corporate bonds with a 5-year maturity. The face value of the bond is $100. Investors believe there is a 10% chance that Grummon will default on these bonds. If Grummon does default, investors expect to receive only 20 cents per dollar they are owed. Assume investors require a 5% expected return on their investment in these bonds.
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:
Grummon Corporation has just issued zero-coupon corporate bonds with a 5-year maturity. The face
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