Chapter14: Investing In Stocks And Bonds
Section: Chapter Questions
Problem 6DTM
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Concept explainers
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:
Question
A(n)
8.5%,
20-year
bond has a par value of $1,000 and a call price of
$1,025.
(The bond's first call date is in 5 years.) Coupon payments are made semiannually (so use semiannual compounding where appropriate).a. Find the current yield, YTM, and YTC on this issue, given that it is currently being priced in the market at
$1,150.
Which of these 3 yields is the highest? Which is the lowest? Which yield would you use to value this bond? Explain.b. Repeat the 3 calculations above, given that the bond is being priced at
$800.
Now which yield is the highest? Which is the lowest? Which yield would you use to value this bond? Explain.a. If the bond is priced at
$1,150,
the current yield is
nothing%.
(Round to two decimal places.)Expert Solution
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