Recycler Battery Corporation (RBC) issued zero coupon bonds 5 years ago at a price of $214.50 per bond. RBC’s zeros had a 20-year original maturity, with a $1,000 par value. The bonds were callable 10 years after the issue date at a price 7 percent over their accrued value on the call date. If the bonds sell for $239.39 in the market today, what annual rate of return should an investor who buys the bonds today expect to earn on them? a. 15.7% b. 12.4% c. 10.0% d. 9.5% e. 8.0%
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:
7A-10. Recycler Battery Corporation (RBC) issued zero coupon bonds 5 years
ago at a price of $214.50 per bond. RBC’s zeros had a 20-year
original maturity, with a $1,000 par value. The bonds were callable
10 years after the issue date at a price 7 percent over their accrued
value on the call date. If the bonds sell for $239.39 in the market
today, what annual
bonds today expect to earn on them?
a. 15.7%
b. 12.4%
c. 10.0%
d. 9.5%
e. 8.0%
Trending now
This is a popular solution!
Step by step
Solved in 3 steps with 3 images
