The yield to maturity on a 1-year zero-coupon bond is currently 7%; the YTM on 2-year zeros is 8%. The Treasury plans to issue a 2-year maturity coupon bond, paying coupons once per year with a coupon rate of 9%. The face value of the bond is $100. a. At what price will the bond sell? (You may use Excel, in which case you should show the Excel formula(e) and the inputs.) b. What will the yield to maturity on the bond be? c. If the expectations theory of the yield curve is correct, what is the market expectation of the price for which the bond will sell next year?
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 yield to maturity on a 1-year zero-coupon bond is
currently 7%; the YTM on 2-year zeros is 8%. The Treasury
plans to issue a 2-year maturity coupon bond, paying coupons
once per year with a coupon rate of 9%. The face value of the
bond is $100.
a. At what price will the bond sell? (You may use Excel, in
which case you should show the Excel formula(e) and the
inputs.)
b. What will the yield to maturity on the bond be?
c. If the expectations theory of the yield curve is correct,
what is the market expectation of the price for which the
bond will sell next year?
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