mple: Suppose that a bond has a face value of P100,000and its ars from now. The coupon rate is5% payable semi-annually. Find nd, assuming that the annual market rate is 4%. en: upon rate r= 5%, payable semi - annually ce Value = 100,000 e to maturity = 10 years nber of periods = 2(10) = 20 ket rate = 4% bondholder receives 20 payments of P2,500 each, and 0,000 at t- 10. ent Value of 100,000: F 100000
mple: Suppose that a bond has a face value of P100,000and its ars from now. The coupon rate is5% payable semi-annually. Find nd, assuming that the annual market rate is 4%. en: upon rate r= 5%, payable semi - annually ce Value = 100,000 e to maturity = 10 years nber of periods = 2(10) = 20 ket rate = 4% bondholder receives 20 payments of P2,500 each, and 0,000 at t- 10. ent Value of 100,000: F 100000
Essentials Of Investments
11th Edition
ISBN:9781260013924
Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Chapter1: Investments: Background And Issues
Section: Chapter Questions
Problem 1PS
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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:
Question
Transcribed Image Text:Example: Suppose that a bond has a face value of P100,000and its maturity date is 10
years from now. The coupon rate is5% payable semi-annually. Find the fair price of this
bond, assuming that the annual market rate is 4%.
Given:
Coupon rate r= 5%, payable semi - annually
Face Value = 100,000
Time to maturity = 10 years
Number of periods = 2(10) = 20
Market rate = 4%
The bondholder receives 20 payments of P2,500 each, and
P100,000 at t = 10.
Present Value of 100,000:
F
P =-
100000
= 67,556.42
1+ 0.0410
Present Value of 20 payments of Php2500 each:
Convert 4% to equivalent semi-annual rate:
1+ jm
0.04
1= (1+=)" -1 - (1+ ) - 1
- 1 =
m
2
| = 0.0404
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