Assume that you have two bond investments and the information follows: Bond A has a par value of $8,000, interest paid semi annual, maturity 2 years, stated interest rate is 6%. Bond B has a par value of $8,000, interest paid semi annual, maturity 10 years, stated interest rate is 6%. The interest rates are increasing to 7%. Assume that you can only sell one of the bonds, which bond will you sell before the interest rate changes to 7%? Explain and support your answer with a present value calculation.
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:
Assume that you have two bond investments and the information follows:
Bond A has a par value of $8,000, interest paid semi annual, maturity 2 years, stated interest rate is 6%.
Bond B has a par value of $8,000, interest paid semi annual, maturity 10 years, stated interest rate is 6%.
The interest rates are increasing to 7%. Assume that you can only sell one of the bonds, which bond will you sell before the interest rate changes to 7%? Explain and support your answer with a present value calculation.
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