Lourdes Corporation’s 12% coupon rate, semiannual payment,$1,000 par value bonds, which mature in 25 years, are callable 6 years from today at $1,025.They sell at a price of $1,278.56, and the yield curve is flat. Assume that interest rates areexpected to remain at their current level.a. What is the best estimate of these bonds’ remaining life?b. If Lourdes plans to raise additional capital and wants to use debt financing, what couponrate would it have to set in order to issue new bonds 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:
Lourdes Corporation’s 12% coupon rate, semiannual payment,
$1,000 par
They sell at a price of $1,278.56, and the yield curve is flat. Assume that interest rates are
expected to remain at their current level.
a. What is the best estimate of these bonds’ remaining life?
b. If Lourdes plans to raise additional capital and wants to use debt financing, what coupon
rate would it have to set in order to issue new bonds at par?
Trending now
This is a popular solution!
Step by step
Solved in 5 steps with 2 images
