The curves on the following graph show the prices of two 10% annual coupon bonds at various interest rates. BOND VALUE ($1 2000 1750 1500 1250 1000 1-Year Bond 750 500 10-Year Bond 250 12 16 20 INTEREST RATE (%)
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:
- Neither bond has any interest rate risk.
- The 1-year bond has more interest rate risk.
- Both bonds have equal interest rate risk.
- The 10-year bond has more interest rate risk.
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