10th Edition

ISBN: 9780134897264

Author: KEOWN, Arthur J., Martin, John D., PETTY, J. William

Publisher: Pearson,

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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 7, Problem 5SP

(Bond valuation) At the beginning of the year, you bought a $1,000 par value corporate bond with a 6 percent annual coupon rate and a 10-year maturity date. When you bought the bond, it had an expected yield to maturity of 8 percent. Today the bond sells for $1,060.

a. What did you pay for the bond?
b. If you sold the bond at the end of the year, what would be your one-period return on the investment?

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Chapter 7, Problem 4SP

Chapter 7, Problem 6SP

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At the beginning of the year, you bought a $1,000 par value corporate bond with a 6 percent annual coupon rate and a 10-year maturity date. Whenyou bought the bond, it had an expected yield to maturity of 8 percent. Today the bond sells for $1,060. a. What did you pay for the bond?b. If you sold the bond at the end of the year, what would be your one-periodreturn on the investment?

(Bond valuation) At the beginning of the year, you bought a $1,000 par value corporate bond with an annual coupon rate of 16 percent and a maturity date of 14 years. When you bought the bond, it had an expected yield to maturity of 15 percent. Today the bond sells for $1,190. a. What did you pay for the bond? b. If you sold the bond at the end of the year, what would be your one-period return on the investment? Assume that you did not receive any interest payment during the holding period.

Suppose you purchase a 10-year bond with 6.19% annual coupons. You hold the bond for 4 years, and sell it immediately after receiving the fourth coupon. If the bond's yield to maturity was 5.34% when you purchased and sold the bond, a. what cash flows will you pay and receive from your investment in the bond per $100 face value? b. what is the annual rate of return of your investment? a. What cash flows will you pay and receive from your investment in the bond per $100 face value? The cash flows from the investment are shown in the following timeline: (Round to the best choice below.) A. Years 2 3 Cash Flows $106.46 $6.19 $6.19 $6.19 $110.46 B. Years 0 2 3 4 Cash Flows - $106.46 $6.19 $6.19 $6.19 $110.46 C. Years 0 1 2 3 4 Cash Flows $104.27 $6.19 $6.19 $6.19 $110.46 D. Years 0 2 3 4 + $6.19 $6.19 $6.19 $104.27 Cash Flows - $110.46 b. What is the annual rate of return of your investment? The annual rate of return of your investment is %. (Round to two decimal places.)

Chapter 7 Solutions

Foundations Of Finance

Ch. 7 - Prob. 1RQ Ch. 7 - Prob. 2RQ Ch. 7 - Prob. 3RQ Ch. 7 - a. How does a bonds par value differ from its...Ch. 7 - Prob. 5RQ Ch. 7 - Prob. 6RQ Ch. 7 - Prob. 7RQ Ch. 7 - Prob. 8RQ Ch. 7 - Prob. 9RQ Ch. 7 - Define the expected rate of return to bondholders.

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Solution Summary: The author explains how to determine the amount paid for the bond and the one period return on investment.

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