Bonds of Francesca Corporation with a par value of $1,000 sell for $960, mature in five years, and have a 7 percent annual coupon rate paid semiannually. Calculate: a. Current yield b. Yield to maturity, to the nearest basis point (that is, x.xx percent) c. Horizon yield (or realized return) for an investor with a three-year holding period and a reinvestment rate of 6 percent over the period. At the end of three years, the 7 percent coupon bonds with two years remaining will sell to yield 7 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:
| Bonds of Francesca Corporation with a par value of $1,000 sell for $960, mature in five years, and have a 7 percent annual coupon rate paid semiannually. Calculate: |
| a. Current yield | |||||||||||
| b. Yield to maturity, to the nearest basis point (that is, x.xx percent) | |||||||||||
| c. Horizon yield (or realized return) for an investor with a three-year holding period and a reinvestment rate of 6 percent over the period. At the end of three years, the 7 percent coupon bonds with two years remaining will sell to yield 7 percent. |
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