It is now March and the current cost of debt for Basis A is 12%. Basis A plans to issue $ 5mn in 20-year bonds (with semi-annual coupons) in September, but fears that rates will rise even higher before then. The following data is available: Futures Prices: Treasury Bonds - $ 100,000; Pts. 32nds of 100% a. What is the implied interest rate for the September contract? b. build a hedge for Basis A.
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:
It is now March and the current cost of debt for Basis A is 12%. Basis A plans to issue $ 5mn in 20-year bonds (with semi-annual coupons) in September, but fears that rates will rise even higher before then. The following data is available: Futures Prices: Treasury Bonds - $ 100,000; Pts. 32nds of 100%
a. What is the implied interest rate for the September contract?
b. build a hedge for Basis A.
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