Suppose your organization has issued a 30 year, 1,000,000 par-value bond with semi-annual coupons of 7%. 25 years after issuance the owner of the bond offers to let your organization redeem the bond early. You can turn down the offer and redeem after 30 years. 1. Should you take the offer if: the market interest rate is 6.5% 2. Should you take the offer if:
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:
Suppose your organization has issued a 30 year, 1,000,000 par-
25 years after issuance the owner of the bond offers to let your organization redeem the bond early. You can turn down the offer and redeem after 30 years.
1. Should you take the offer if:
the market interest rate is 6.5%
2. Should you take the offer if:
the market interest rate is 7.5%
3. Should you take the offer if:
the market interest rate is 7%
4. Should you take the offer if:
the market interest rate is 6.5% and redemption today requires a redemption of 1,200,000
5. What general rule for early redemption can you make?
Sidenote: Show calculations
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