7A-3 STRIPPED U.S. TREASURY BOND McGwire Company's pension fund pro- jected that a significant number of its employees would take advantage of an early retirement program the company plans to offer in 5 years. Anticipating the need to fund these pensions, the firm bought zero cou- pon U.S. Treasury Trust Certificates maturing in 5 years. When these instruments were originally issued, they were 12% coupon, 30-year U.S. Treasury bonds. The stripped Treasuries are currently priced to yield 10%. Their total maturity value is $6,000,000. What is their total cost (price) to McGwire today?
7A-3 STRIPPED U.S. TREASURY BOND McGwire Company's pension fund pro- jected that a significant number of its employees would take advantage of an early retirement program the company plans to offer in 5 years. Anticipating the need to fund these pensions, the firm bought zero cou- pon U.S. Treasury Trust Certificates maturing in 5 years. When these instruments were originally issued, they were 12% coupon, 30-year U.S. Treasury bonds. The stripped Treasuries are currently priced to yield 10%. Their total maturity value is $6,000,000. What is their total cost (price) to McGwire today?
Chapter6: Bonds (debt) - Characteristics And Valuation
Section: Chapter Questions
Problem 7PROB
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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:
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Transcribed Image Text:7A-3 STRIPPED U.S. TREASURY BOND McGwire Company's pension
fund pro- jected that a significant number of its employees would
take advantage of an early retirement program the company plans
to offer in 5 years. Anticipating the need to fund these pensions, the
firm bought zero cou- pon U.S. Treasury Trust Certificates maturing
in 5 years. When these instruments were originally issued, they were
12% coupon, 30-year U.S. Treasury bonds. The stripped Treasuries
are currently priced to yield 10%. Their total maturity value is
$6,000,000. What is their total cost (price) to McGwire today?
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