You are considering a 10-year, Rs. 1000 par value bond. Its coupon rate is 10% and interest is paid semiannually. If you require an effective annual interest rate of 8%, how much should you be willing to pay for the bond? Is effective annual interest rate differing from coupon rate? Explain.
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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