The Chief Financial Officer of a company would like to raise money for new equipment by floating a new bond issue. The CFO would like to receive $1000 (full face value) for each of the bonds she sells. After collecting the below bond market data, and if the bonds carry a rating of A and have a term of 10 years, what coupon rate should be included in the bond contract? Assume an annual coupon paymen
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:
The Chief Financial Officer of a company would like to raise money for new equipment by floating a new bond issue. The CFO would like to receive $1000 (full face value) for each of the bonds she sells. After collecting the below bond market data, and if the bonds carry a rating of A and have a term of 10 years, what coupon rate should be included in the bond contract? Assume an annual coupon payment.
Security
& Rating
Maturity Face Coupon Price
Treasury 1 $ 1,000 0.00% $ 965.00
Treasury 3 $ 1,000 1.90% $ 939.06
Treasury 5 $ 1,000 4.30% $ 932.42
Treasury 10 $ 1,000 6.80% $ 1,007.12
Treasury 15 $ 1,000 6.60% $ 908.25
CorpA A 5 $ 1,000 8.10% $ 990.00
CorpB BB 10 $ 1,000 7.90% $ 859.88
CorpC AA 15 $ 1,000 7.00% $ 660.00
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