Present discounted value (you might want to use a calculator or excel to compute this) a) Suppose a bond pays a coupon of 200$ for four years and a face value of 2000$ in year five. If the discount rate is 8%, what is the Present Discounted Value of this bond? b) If Nilly discounts the future at 5%, what is the maximum amount they’d be willing to pay for a 1 year, no coupon, 10000$ bond? If Shifty discounts the future at 10% what is the minimum amount they’d be willing to accept for the same bond? c) Suppose an investment project costs 1000$ upfront (year 2022), 1000$ next year (2023), then 500$ in years 2024 and 2025 each. Then it pays benefits of 1500$ for the following three years (2026, 2027, 2028). If the discount rate is 10%, is the project worth it?
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:
1.
a) Suppose a bond pays a coupon of 200$ for four years and a face value of 2000$ in year five. If the discount rate is 8%, what is the Present Discounted
b) If Nilly discounts the future at 5%, what is the maximum amount they’d be willing to pay for a 1 year, no coupon, 10000$ bond? If Shifty discounts the future at 10% what is the minimum amount they’d be willing to accept for the same bond?
c) Suppose an investment project costs 1000$ upfront (year 2022), 1000$ next year (2023), then 500$ in years 2024 and 2025 each. Then it pays benefits of 1500$ for the following three years (2026, 2027, 2028). If the discount rate is 10%, is the project worth it?
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