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:
Blackstone Energy is is planning to issue two types of 25-year non-callable bonds to raise a total of $6 million. First, 3,000 bonds with a 10% annual coupon rate will be sold at their $1,000 par value to raise $3 million. Second original issue discount (OID) bonds, also with a 25-year maturity and a $1,000 par value, will be sold, but these bonds will have a nominal coupon of only 6.80%, also with annual payments. The OID bonds must be offered at a discount (i.e., below par) in order to provide investors with the same yield as the par bonds. How many OID bonds must the firm issue to raise the other $3 million?You may round your answer up or down to a whole number of bonds.
Hint: Calculate the price of OID bonds (given the nominal coupon rate and annual yield of 10%), and divide that price into the $3 million.
Your answer should be between 3150 and 4850, with no special characters.
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