You are considering the purchase of a 20-year bond with an annual coupon rate of 9.5%. The bond has a face value of $1,000. You require a 12% nominal yield to maturity on this investment. If the bond makes annual interest payments, what is the maximum price you should be willing to pay for the bond? If the bond makes semiannual interest payments, what is the maximum price you should be willing to pay for the bond?
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 the purchase of a 20-year bond with an annual coupon rate of 9.5%. The bond has a face value of $1,000. You require a 12% nominal yield to maturity on this investment.
- If the bond makes annual interest payments, what is the maximum price you should be willing to pay for the bond?
- If the bond makes semiannual interest payments, what is the maximum price you should be willing to pay for the bond?
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