All the bonds in the following table have a face value of £100. Your client is thinking of issuing a three year zero coupon bond which would be rated as AA. Such a bond does not currently exist in the market. Calculate the price of the 3-year zero coupon bond using the appropriate bonds from the table below. BOND CREDIT RATING PRICE 1 year zero AA 2 year zero AA £94 2 year zero BB £90 3 year 5% coupon rate annual coupon payment AA £87 3 year zero AA
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:
All the bonds in the following table have a face value of £100. Your client is thinking
of issuing a three year zero coupon bond which would be rated as AA. Such a bond
does not currently exist in the market. Calculate the price of the 3-year zero coupon
bond using the appropriate bonds from the table below.
| BOND | CREDIT RATING | PRICE |
| 1 year zero | AA | |
| 2 year zero | AA | £94 |
| 2 year zero | BB | £90 |
| 3 year 5% coupon rate annual coupon payment | AA | £87 |
| 3 year zero | AA | £99.5 |
| ?? |
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