Essentials Of Investments
Essentials Of Investments
11th Edition
ISBN: 9781260013924
Author: Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher: Mcgraw-hill Education,
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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 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:
Question
6. The Mariposa Co. has two bonds outstanding. One was issued 25 years ago at a coupon rate of 9%. The other was issued 5 years ago at a coupon rate of 9%. Both bonds were originally issued with terms of 30 years and face values of $1,000. The going interest rate is 14% today. a. What are the prices of the two bonds at this time? b. Discuss the result of part (a) in terms of risk in investing in bonds.
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Transcribed Image Text:6. The Mariposa Co. has two bonds outstanding. One was issued 25 years ago at a coupon rate of 9%. The other was issued 5 years ago at a coupon rate of 9%. Both bonds were originally issued with terms of 30 years and face values of $1,000. The going interest rate is 14% today. a. What are the prices of the two bonds at this time? b. Discuss the result of part (a) in terms of risk in investing in bonds.
components.) Finding the Yield at a Price: Concept Connection Example 7-3 (page 300) 11. Smithson Co.s Class A bonds have 10 years to go until maturity. They have a $1,000 face value and carry coupon rates of 8%. Approximately what do the bonds yield at the following prices? a. $770 b. $1,150
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Transcribed Image Text:components.) Finding the Yield at a Price: Concept Connection Example 7-3 (page 300) 11. Smithson Co.s Class A bonds have 10 years to go until maturity. They have a $1,000 face value and carry coupon rates of 8%. Approximately what do the bonds yield at the following prices? a. $770 b. $1,150
Expert Solution
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INTRODUCTION

  The Yield To Maturity (YTM) is one one the method used to find out the price of bond. It gives the measure about the return from bonds. The return that the bond held at the time of maturity is the Yield To Maturity. It contains the total income earned by the investor over the of the security. The total income consist of coupon income, capital gains or losses and interest on coupon rate.

It can be calculated using the following equation:

Market Price = ∑t=1nC1+YTMt+F1+YTMn

Where,

C = Periodic coupon payments or Cash flow

F = The face value of the bond received

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