A company has a P1,200 face value bond with 8 years until maturity. The bond possesses a characteristic of being callable at 105% of the par in year 3. The current price of each bond is P1,300 with 10% annual coupon. What is the approximate yield to maturity? A 7.69% B 8.53% C 8.01% D 8.12%

A company has a P1,200 face value bond with 8 years until maturity. The bond possesses a characteristic of being callable at 105% of the par in year 3. The current price of each bond is P1,300 with 10% annual coupon. What is the approximate yield to maturity? A 7.69% B 8.53% C 8.01% D 8.12%

Intermediate Financial Management (MindTap Course List)

13th Edition

ISBN:9781337395083

Author:Eugene F. Brigham, Phillip R. Daves

Publisher:Eugene F. Brigham, Phillip R. Daves

Chapter4: Bond Valuation

Section: Chapter Questions

Problem 4MC

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Concept explainers

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:

Question

A 7.69%

B 8.53%

C 8.01%

D 8.12%

Definition Definition Calculates the present value of a bond's expected future periodic coupon payments. Bond valuation determines the theoretical fair value of a particular bond and helps investors estimate what rate of return they could expect. The bond's theoretical fair value is computed by discounting the future cash flows or coupon payments by an applicable discount rate.

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