Bent ltd has a bond issue that will mature to its $1000 par value in 12 years. It pays interestannually and has a coupon rate of 11%.a) Find the value of the bond if the required rate of return is? 11%? 15%? 8%2b) Plot your finding on a set of required return (x-axis) and market value of bond (y-axis)c) Use your findings in parts a and b to discuss the relationship between the coupon interestrate on a bond and the required return and the market value of the bond relative to its parvalue.d) What possible reasons could cause the required rate to differ from the coupon interest rate
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:
Bent ltd has a bond issue that will mature to its $1000 par value in 12 years. It pays interest
annually and has a coupon rate of 11%.
a) Find the value of the bond if the required
? 11%
? 15%
? 8%
2
b) Plot your finding on a set of required return (x-axis) and market
c) Use your findings in parts a and b to discuss the relationship between the coupon interest
rate on a bond and the required return and the market value of the bond relative to its par
value.
d) What possible reasons could cause the required rate to differ from the coupon interest rate
Step by step
Solved in 4 steps with 2 images
