Part a: You are considering investing in a 9 year bond with a face value of $10,000, an annual coupon rate of 8% and a yield to maturity of 12%. Part b: Assume that you purchased the bond. Three years later, after you have received the first three coupons, your broker tells you the bond is now trading at a yield to maturity of 7.6%. QUESTION: What annual rate of return would you have earned if you purchased the bond in part a and sold it in part b?
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:
Part a: You are considering investing in a 9 year bond with a face value of $10,000, an annual coupon rate of 8% and a yield to maturity of 12%.
Part b: Assume that you purchased the bond. Three years later, after you have received the first three coupons, your broker tells you the bond is now trading at a yield to maturity of 7.6%.
QUESTION: What annual
Step by step
Solved in 5 steps