Last month, you invested $5,000 in a 10-year corporate bond to hold as an investment. If the Fed announces that they will increase interest rates next month, what is the expected impact on the value of your investment in the bond? A. The bond will continue to pay the same coupon rate, so the bond price will not change B. Bond price will increase due to the interest rate increase C. Bond price will decline due to the interest rate increase
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:
Last month, you invested $5,000 in a 10-year corporate bond to hold as an investment. If the Fed announces that they will increase interest rates next month, what is the expected impact on the value of your investment in the bond?
| A. |
The bond will continue to pay the same coupon rate, so the |
|
| B. |
Bond price will increase due to the interest rate increase |
|
| C. |
Bond price will decline due to the interest rate increase |
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