Question 4 The following is a list of prices today for bonds with different maturities. Face value is 100. Assume that the bonds pay their coupons annually, and that the YTMs in the table are annualized and compounded annually. Both coupon rate and yield to maturity (YTM) is in percent. Maturity (years) Price Coupon rate YTM 1 98.00 0 ? 2 100 ? 5.00 3?9 6.00 Fill in the missing values in the table.
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 4
The following is a list of prices today for bonds with different maturities. Face value is 100. Assume that the bonds pay their coupons annually, and that the YTMs in the table are annualized and compounded annually. Both coupon rate and yield to maturity (YTM) is in percent.
Maturity (years) Price Coupon rate YTM 1 98.00 0 ?
2 100 ? 5.00 3?9 6.00
Fill in the missing values in the table.
What are the annualized spot rates for years 1 & 2 (r1 & r2)?
Given r1 & r2, what is the price of a 2-year coupon bond with annual coupon rate of 7%? What is the duration of this bond?
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