Last year, a firm issued 30-year, 8% annual coupon bonds at a parvalue of $1,000. (1) Suppose that 1 year later the going rate dropsto 6%. What is the new price of the bonds, assuming that they nowhave 29 years to maturity? ($1,271.81) (2) Suppose instead that 1year after issue, the going interest rate increases to 10% (ratherthan dropping to 6%). What is the price? ($812.61)
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 30-year, 8% annual coupon bonds at a par
value of $1,000. (1) Suppose that 1 year later the going rate drops
to 6%. What is the new price of the bonds, assuming that they now
have 29 years to maturity? ($1,271.81) (2) Suppose instead that 1
year after issue, the going interest rate increases to 10% (rather
than dropping to 6%). What is the price? ($812.61)
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