Kai buys a 19 year callable bond with a coupon rate of 4.000% (nominal, semi-annual). The bond is callable at par on any coupon date starting at the end of year 15. Kai pays $31,626.64 and is guaranteed to earn a yield of at least 1.250% (nominal, semi-annual) on his investment. What is the face value F of the bond? O a. $23,000.00 O b. $25,300.00 O c. $18,850.00 O d. $23,450.00 O e. $28,050.00
Kai buys a 19 year callable bond with a coupon rate of 4.000% (nominal, semi-annual). The bond is callable at par on any coupon date starting at the end of year 15. Kai pays $31,626.64 and is guaranteed to earn a yield of at least 1.250% (nominal, semi-annual) on his investment. What is the face value F of the bond? O a. $23,000.00 O b. $25,300.00 O c. $18,850.00 O d. $23,450.00 O e. $28,050.00
Chapter6: Fixed-income Securities: Characteristics And Valuation
Section: Chapter Questions
Problem 16P
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Concept explainers
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:
Question
Transcribed Image Text:Kai buys a 19 year callable bond with a coupon rate of 4.000% (nominal, semi-annual). The bond is callable at par on any coupon date
starting at the end of year 15. Kai pays $31,626.64 and is guaranteed to earn a yield of at least 1.250% (nominal, semi-annual) on his
investment. What is the face value F of the bond?
O a. $23,000.00
O b. $25,300.00
O c. $18,850.00
O d. $23,450.00
Oe.
$28,050.00
Javier buys a 25 year, $950,000.00 face value, 1.750% coupon bond. The bond is priced to yield r26) = 5.750%, and is secured by a sinking
fund (set up by the issuer with semi-annual deposits), that earns 4.250% compounded quarterly. On default, Javier claims the balance in
the sinking fund. How much does he lose if the issuer defaults after 24 years (just after making their coupon payment, and sinking fund
deposit).
O a. $22,011.08.
O b. $18,535.65.
Oc.
$23,169.56.
O d. $23,632.95.
O e. $23,864.64.
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