The coupon paying bonds of DFD Ltd mature in 5 years' time and have a coupon rate of 5% and a yield to maturity of 7%. If the yield to maturity on the bonds falls, what is most likely to happen to the price of the bonds? O The bonds will now sell at a premium. O The bonds will now sell at par. o One cannot say anything about the price of the bonds without additional information. O The bonds will now sell at a discount.
The coupon paying bonds of DFD Ltd mature in 5 years' time and have a coupon rate of 5% and a yield to maturity of 7%. If the yield to maturity on the bonds falls, what is most likely to happen to the price of the bonds? O The bonds will now sell at a premium. O The bonds will now sell at par. o One cannot say anything about the price of the bonds without additional information. O The bonds will now sell at a discount.
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
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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:
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