on February 5, 2020 ZEE Borrowed Sh.50 Million through issue of 50 Million bond at par sh..1000/=. The coupon rate is 10% payable annually Market interest rate is 10% The bond matures on 5 January 2030 Required Calculate the value of this bond. If after 3 years; the market interest rates rises to 12%; What would be the value of the bond? If interest rates are constant at 12% pa and 5 years have elapsed since initial issue date What would be the price of the bond? Given the above scenarios what the relationship between the interest rate and the bond price? Given the Initial data and market interest rates ( yields) are between 0% and 15% what would be the price of the bond at these interest rates.
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:
on February 5, 2020 ZEE Borrowed Sh.50 Million through issue of
50 Million bond at par sh..1000/=.
The coupon rate is 10% payable annually
Market interest rate is 10%
The bond matures on 5 January 2030
Required
- Calculate the value of this bond. If after 3 years; the market interest rates rises to 12%; What would be the value of the bond?
- If interest rates are constant at 12% pa and 5 years have elapsed since initial issue date What would be the price of the bond?
- Given the above scenarios what the relationship between the interest rate and the
bond price ? - Given the Initial data and market interest rates ( yields) are between 0% and 15% what would be the price of the bond at these interest rates.
Step by step
Solved in 2 steps with 4 images
