i. Calculate the value of Macaulay’s duration for a 10-year, $1000 par value bond purchased today at a yield to maturity of 14% and a coupon rate of 10%. ii. From the answer in (i) calculate the modified duration of the bond assuming the prevailing interest rate is still 14%. iii. Now suppose the market interest rate on comparable bonds falls to 13 percent. What will be the approximate percentage change in the bond price.? (Hint: use the modified duration for your computation in (ii)) iv. Given the information in (i), did the bond sell at a discount or premium? v. One of the most important structural changes affecting the banking community in Ghana is the drive towards consolidation. Discuss three benefits of this move to the Ghanaian economy.
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:
i. Calculate the value of Macaulay’s duration for a 10-year, $1000 par value bond purchased today at a
yield to maturity of 14% and a coupon rate of 10%.
ii. From the answer in (i) calculate the modified duration of the bond assuming the prevailing interest rate is still 14%.
iii. Now suppose the market interest rate on comparable bonds falls to 13 percent. What will be the
approximate percentage change in the
computation in (ii))
iv. Given the information in (i), did the bond sell at a discount or premium?
v. One of the most important structural changes affecting the banking community in Ghana is the drive
towards consolidation. Discuss three benefits of this move to the Ghanaian economy.
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