A $1,000 bond has a 7.5 percent coupon and matures after ten years. If current interest rates are ten percent, what should be the price of the bond? If after six years interest rates are still ten percent, what should be the price of the bond? Even though interest rates did not change in a and b, why did the price of the bond change? Change the interest rate in a and b to 6 percent and rework your answers. Even though the interest rate is 6 percent in both calculations, why are the bond prices different? Use semi- annual interest payments if it applies to any of these questions. Im completely lost on this.
A $1,000 bond has a 7.5 percent coupon and matures after ten years. If current interest rates are ten percent, what should be the price of the bond? If after six years interest rates are still ten percent, what should be the price of the bond? Even though interest rates did not change in a and b, why did the price of the bond change? Change the interest rate in a and b to 6 percent and rework your answers. Even though the interest rate is 6 percent in both calculations, why are the bond prices different? Use semi- annual interest payments if it applies to any of these questions. Im completely lost on this.
Chapter5: The Time Value Of Money
Section: Chapter Questions
Problem 11P
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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:
Question
- A $1,000 bond has a 7.5 percent coupon and matures after ten years. If current interest rates are ten percent, what should be the price of the bond?
- If after six years interest rates are still ten percent, what should be the price of the bond?
- Even though interest rates did not change in a and b, why did the price of the bond change?
- Change the interest rate in a and b to 6 percent and rework your answers. Even though the interest rate is 6 percent in both calculations, why are the
bond prices different? - Use semi- annual interest payments if it applies to any of these questions. Im completely lost on this.
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