Five years ago you paid $10,000 for five, 10-year $2,000 bonds to help finance Engineer Paul's worm composting farm with a 10% coupon rate paid semi-annually (5% per six months). Immediately after the 10th coupon payment, you are offered $2050 for each bond. a) What would the market rate of interest probably be? b) What is the original yield to maturity and the yield to maturity at the new offered price? c) You sell the bonds for $2050 each. What was the current yield when you purchased the bonds? current yield at the time of sale?
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:
Five years ago you paid $10,000 for five, 10-year $2,000 bonds to help finance Engineer Paul's worm composting farm with a 10% coupon rate paid semi-annually (5% per six months). Immediately after the 10th coupon payment, you are offered $2050 for each bond. a) What would the market rate of interest probably be?
b) What is the original yield to maturity and the yield to maturity at the new offered price? c) You sell the bonds for $2050 each. What was the current yield when you purchased the bonds?
current yield at the time of sale?
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