Suppose a 10-year, 10% semiannual coupon bondwith a par value of $1,000 is currently selling for$1,135.90, producing a nominal yield to maturityof 8%. However, the bond can be called after5 years for a price of $1,050.(1) What is the bond’s nominal yield to call (YTC)?(2) If you bought this bond, do you think youwould be more likely to earn the YTM or theYTC? Why?
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:
Suppose a 10-year, 10% semiannual coupon bond
with a par value of $1,000 is currently selling for
$1,135.90, producing a nominal yield to maturity
of 8%. However, the bond can be called after
5 years for a price of $1,050.
(1) What is the bond’s nominal yield to call (YTC)?
(2) If you bought this bond, do you think you
would be more likely to earn the YTM or the
YTC? Why?
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