Pakistan Cables offers 5-Year bonds with 8% coupon (semiannual interest payment). Redemption value is Rs: 1200. Inflation risk premium on these bonds is current inflation rate plus 2%, and default risk premium of Pakistan Cables is 3% followed by 2.5% of industry risk premium. Determine the annual interest for 5-Years bonds issued by Pakistan Cables? What could be the impact of above situation on coupon interest rate and discount rate on these bonds. What could be the impact of above situation on coupon interest rate and discount rate on these bonds if the coupon on these bonds is Current inflation plus 5%.
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:
Pakistan Cables offers 5-Year bonds with 8% coupon (semiannual interest payment). Redemption value is Rs: 1200. Inflation risk premium on these bonds is current inflation rate plus 2%, and default risk premium of Pakistan Cables is 3% followed by 2.5% of industry risk premium.
- Determine the annual interest for 5-Years bonds issued by Pakistan Cables?
- What could be the impact of above situation on coupon interest rate and discount rate on these bonds.
- What could be the impact of above situation on coupon interest rate and discount rate on these bonds if the coupon on these bonds is Current inflation plus 5%.
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