The current rate of inflation is 11.7 percent, and long-term bonds are yielding 13.6 percent. You estimate that the rate of inflation will increase to 6 percent. What do you expect to happen to long-term bond yields? Compute the effect of this estimated change in inflation on the price of a 15-year, 10 percent coupon bond with a current yield to maturity of 18 percent
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:
The current rate of inflation is 11.7 percent, and long-term bonds are yielding 13.6
percent. You estimate that the rate of inflation will increase to 6 percent. What do you
expect to happen to long-term bond yields? Compute the effect of this estimated change
in inflation on the price of a 15-year, 10 percent coupon bond with a current yield to
maturity of 18 percent
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