Intermediate Financial Management (MindTap Course List)

13th Edition

ISBN: 9781337395083

Author: Eugene F. Brigham, Phillip R. Daves

Publisher: Cengage Learning

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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 th…

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:

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Textbook Question

Chapter 4, Problem 5MC

(1) What would be the value of the bond described in Part d if, just after it had been issued, the expected inflation rate rose by 3 percentage points, causing investors to require a 13% return? Would we now have a discount or a premium bond?
(2) What would happen to the bond’s value if inflation fell and r_d declined to 7%? Would we now have a premium or a discount bond?
(3) What would happen to the value of the 10-year bond over time if the required rate of return remained at 13%? If it remained at 7%? (Hint: With a financial calculator, enter PMT, I/YR, FV, and N, and then change N to see what happens to the PV as the bond approaches maturity.)

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Chapter 4, Problem 4MC

Chapter 4, Problem 8MC

Chapter 4 Solutions

Intermediate Financial Management (MindTap Course List)

Ch. 4 - Short-term interest rates are more volatile than...Ch. 4 - The rate of return on a bond held to its maturity...Ch. 4 - If you buy a callable bond and interest rates...Ch. 4 - A sinking fund can be set up in one of two ways....Ch. 4 - Prob. 1P Ch. 4 - Prob. 2P Ch. 4 - Current Yield for Annual Payments Heath Food...Ch. 4 - Determinant of Interest Rates The real risk-free...Ch. 4 - Default Risk Premium A Treasury bond that matures...Ch. 4 - Prob. 6P

Ch. 4 - Bond Valuation with Semiannual Payments Renfro...Ch. 4 - Prob. 8P Ch. 4 - Bond Valuation and Interest Rate Risk The Garraty...Ch. 4 - Prob. 10P Ch. 4 - Prob. 11P Ch. 4 - Bond Yields and Rates of Return A 10-year, 12%...Ch. 4 - Yield to Maturity and Current Yield You just...Ch. 4 - Current Yield with Semiannual Payments A bond that...Ch. 4 - Prob. 15P Ch. 4 - Interest Rate Sensitivity A bond trader purchased...Ch. 4 - Bond Value as Maturity Approaches An investor has...Ch. 4 - Prob. 18P Ch. 4 - Prob. 19P Ch. 4 - Prob. 20P Ch. 4 - Bond Valuation and Changes in Maturity and...Ch. 4 - Yield to Maturity and Yield to Call Arnot...Ch. 4 - Prob. 23P Ch. 4 - Prob. 1MC Ch. 4 - Prob. 2MC Ch. 4 - How does one determine the value of any asset...Ch. 4 - Prob. 4MC Ch. 4 - What would be the value of the bond described in...Ch. 4 - Suppose a 10-year, 10% semiannual coupon bond with...Ch. 4 - Prob. 9MC Ch. 4 - Prob. 10MC Ch. 4 - Prob. 11MC Ch. 4 - Prob. 12MC Ch. 4 - Prob. 14MC Ch. 4 - Prob. 15MC Ch. 4 - Prob. 16MC Ch. 4 - Prob. 17MC

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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 bonds 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?
Suppose there is a large probability that L will default on its debt. For the purpose of this example, assume that the value of Ls operations is 4 million (the value of its debt plus equity). Assume also that its debt consists of 1-year, zero coupon bonds with a face value of 2 million. Finally, assume that Ls volatility, , is 0.60 and that the risk-free rate rRF is 6%.

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