uppose you purchased a corporate bond with a10-year maturity, a $1,000 par value, a 10% couponrate, and semiannual interest payments. This meansthat you receive a $50 interest payment at the end ofeach six-month period for 10 years (20 times). Then,when the bond matures, you will receive the principalamount (the face value) in a lump sum. Three yearsafter the bonds were purchased, the going rate ofinterest on new bonds fell to 6% (or 6% compoundedsemiannually). What is the current market value (P)of the bond (three years after its purchase)?
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:
uppose you purchased a corporate bond with a
10-year maturity, a $1,000 par value, a 10% coupon
rate, and semiannual interest payments. This means
that you receive a $50 interest payment at the end of
each six-month period for 10 years (20 times). Then,
when the bond matures, you will receive the principal
amount (the face value) in a lump sum. Three years
after the bonds were purchased, the going rate of
interest on new bonds fell to 6% (or 6% compounded
semiannually). What is the current market value (P)
of the bond (three years after its purchase)?
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