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:
Firm A has 5.25% semiannual coupon bonds. Market price = $546.19. The yield to maturity = 16.28 percent. It takes how many years for it to mature?
A) 6.64
B) 7.08
C) 12.41
D) 14.16
E) 28.32
Bonds are financial instruments which provide fixed returns to its holders. Bonds actually have a nature of debt with a fixed interest rate and a maturity, also known as Plain Vanilla Bond. Some bonds have a callability feature that enables the issuer to call and buy back the bonds from the existing bondholders.
The price of the bond can be calculated as:
Where C denotes the Coupon Amount; 5.25% of $ 1000; $ 52.5 paid annually or $ 26.25 payable semi-annually
r denotes the Yield to Maturity, 16.28% annually or 0.0814 compounded semi-annually
n denotes the Time to Maturity;
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