You have a large amount of money to invest for a short term of two years. You have done some market research and found that an Auckland International Airports bond maturing in one year yields 3%p.a., and an Auckland International Airports bond maturing in two years yields 5%p.a. You are quite confident that because of rising interest rates, in one year's time the two-year bond (which by then will have one year left until maturity) will yield 7%p.a., Explain whether you should invest in the two-year bond now or buy the one-year bond and renew your investment in a year’s time?
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 have a large amount of money to invest for a short term of two years. You have done some
Step by step
Solved in 2 steps
