Midland Oil, Inc. purchased $1,000 par value bonds paying 10% interest semi-annually. The bond will mature in 5 years. Assume interest rate in the market declinesf rom 11% to 7%. What is the bond price at percent? What is the bond price at 7 percent? If Midland Oil sold the bond when the market interest rate dropped from 11 percent to 7 percent, what would be Midland’s return on its investment?
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:
Midland Oil, Inc. purchased $1,000 par value bonds paying 10% interest semi-annually. The bond will mature in 5 years. Assume interest rate in the market declinesf rom 11% to 7%.
What is the
What is the bond price at 7 percent?
If Midland Oil sold the bond when the market interest rate dropped from 11 percent to 7 percent, what would be Midland’s return on its investment?
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