Last year a firm issued 20-year, 8% annual coupon bonds at a par value of $1,000.a. Suppose that 1 year later the going market interest rate drops to 6%. What is thenew price of the bonds, assuming they now have 19 years to maturity? b. Suppose that 1 year after issue, the going market interest rate is 10% (rather than6%). What would the price have been?
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:
Last year a firm issued 20-year, 8% annual coupon bonds at a par value of $1,000.
a. Suppose that 1 year later the going market interest rate drops to 6%. What is the
new price of the bonds, assuming they now have 19 years to maturity?
b. Suppose that 1 year after issue, the going market interest rate is 10% (rather than
6%). What would the price have been?
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