You are considering a bond with a coupon rate of 10% per annum. Coupons are paid semiannually. The bond has a face value of ¢1000 and matures in 5 years. The yield to maturity is 11%. What is the value of the bond? Indicated whether the bond is trading at a premium, discount, or at par
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:
You are considering a bond with a coupon rate of 10% per annum. Coupons are paid semiannually. The bond has a face value of ¢1000 and matures in 5 years. The yield to maturity is 11%. What is the
Computation:
Hence, the value of the bond is $1,339.19. Since the value is higher than the face value the bond is trading in premium.
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