An analyst observes a 20-year, 8% option-free bond with semi-annual coupons. The required semiannual-pay yield to maturity on this bond was 8%, but suddenly it drops to 7.25%. 35. As a result of the drop, the price of this bond: A. will increase. B. will decrease. C. will stay the same 36. Prior to the change in the required yield, what was the price of the bond? A. 92.64. B.100.00. C. 107.85. 37. The percentage change in the price of this bond when the rate decreased is closest to: A. 7.86% B. 7.79% C. 8.00%
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:
Use the following data to answer Questions 35 through 37.
An analyst observes a 20-year, 8% option-free bond with semi-annual coupons. The required semiannual-pay yield to maturity on this bond was 8%, but suddenly it drops to 7.25%.
35. As a result of the drop, the price of this bond:
A. will increase.
B. will decrease.
C. will stay the same
36. Prior to the change in the required yield, what was the price of the bond?
A. 92.64.
B.100.00.
C. 107.85.
37. The percentage change in the price of this bond when the rate decreased is closest to:
A. 7.86%
B. 7.79%
C. 8.00%.
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