Use the Fisher Effect/equation. A $1,000 Par value, 3% Coupon bond with 10 years to maturity is trading for $1,000 Assume that currently there is no inflation and investors require a Real Rate of Return of 3% (which they are getting) If Inflation spikes instantly from zero to 2%, what will be the new price of the bond? All cash flows occur at the end of the period.
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:
Use the Fisher Effect/equation.
A $1,000 Par
Assume that currently there is no inflation and investors require a Real
If Inflation spikes instantly from zero to 2%, what will be the new price of the bond?
All cash flows occur at the end of the period.
Trending now
This is a popular solution!
Step by step
Solved in 2 steps
