Question: Investor bought 20-year bond with a coupon rate of 10% at face value of Rs.1000. After three years YTM is 9% in market. Investor decided to sell bond after holding it for three years. Required: What should be YTM in market when investor bought bond? How much interest investor received during his holding period? At what price investor sold bond?
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:
Investor bought 20-year bond with a coupon rate of 10% at face value of Rs.1000. After three years YTM is 9% in market. Investor decided to sell bond after holding it for three years.
Required:
- What should be YTM in market when investor bought bond?
- How much interest investor received during his holding period?
- At what price investor sold bond?
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