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:
Pedrollo Pumps has issued a bond which has a $1,000 par value and a 15 percent annual coupon
interest rate. The bond will mature in twenty years and currently sells for $1,250.
Required:
a) Using the approximation formula, calculate the yield to maturity (YTM)
b) Calculate the current yield of Pedrollo bonds.
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