ou are working for an investment company that intends to invest in corporate bonds available in the market. The face value of all the bonds is $1000. The bond currently under your consideration pays 5% coupon annually. The bond has 3 years to maturity. Market interest rate is equal to “10% Calculate the price of the bond today, 1 year from now, and 2 years from now (Hint: Today N=3, one year from now N=2, two years from now N=1). Is your bond a premium bond or a discount bond? Calculate annual returns (Current yield), your bond is paying every year. (Show all the working).
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:
You are working for an investment company that intends to invest in corporate bonds available in the market. The face value of all the bonds is $1000. The bond currently under your consideration pays 5% coupon annually. The bond has 3 years to maturity. Market interest rate is equal to “10%
- Calculate the price of the bond today, 1 year from now, and 2 years from now (Hint: Today N=3, one year from now N=2, two years from now N=1).
- Is your bond a premium bond or a discount bond?
- Calculate annual returns (Current yield), your bond is paying every year. (Show all the working).
- What will be the price of the bond at the time of maturity?
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