Valuation of bonds and debentures, Finance Basics

Valuation of Bonds and Debentures

It will depend on expected cash flows consisting of annual interest in additional the principal amount to be obtained at maturity.  The suitable rate of capitalization or discount rate to be applied will depend upon the riskiness of the bond as like government bonds are less risky and will hence call for lower discount rates than same like bonds issued via private companies that will call for high rate of discount.

Valuation of bonds with maturity period

Whenever a bond or debenture has reached maturity, so its value can be determined through considering annual interest payments in addition its terminal or maturity and this is complete via using the P.V. concept to discount the cash flows and the conclusion will be compared to the market value of the bond to ascertain whether it has undervalued or overvalued.

1050_Valuation of Bonds and Debentures.png

Where like: Int   = Annual interest

                   Kd = necessary rate of return

                   M   = Terminal/maturity value

                   n   = Number of years to maturity

Posted Date: 1/31/2013 2:14:52 AM | Location : United States

Related Discussions:- Valuation of bonds and debentures, Assignment Help, Ask Question on Valuation of bonds and debentures, Get Answer, Expert's Help, Valuation of bonds and debentures Discussions

Write discussion on Valuation of bonds and debentures
Your posts are moderated
Related Questions
A City has determined that building a new water distribution system using a new source of water would have an annual costs of $5,750,000 and annual net benefits of $4,250,000. The

Cost of Redeemable Debentures and Preference Shares Redeemable fixed return securities have an exact maturity period.  The cost of those securities is called redemption yield

Existence of Quantity Discounts Recurrently, the firm is capable to take benefits of quantity discounts.  Since these discounts affect the price per unit, they influence also

The operating profit (EBIT) of ABC Ltd is Rs. 1,60,000. Its capital structure consists of the following: 10% Debentures Rs. 500000 12% Preference Shares 1

Asset: - An asset stands for an item of value owned and controlled by an organization which can generate revenue for the organization or can help in generating the organization re

Intercontinental Baseball Manufacturers (IBM) has an outstanding bond with a $1,000 face value that matures in 10 years. The bond, which pays $25 interest every six months ($50 per

Question   Clifton-Peters Ltd is a manufacturer of household goods located in Melbourne. They presently make and wholesale fruit juicers, blenders and baking equipment. The Gen

Asset Based Valuation - Example K and K Company Limited is planning to absorb three other companies so as to realize its sales records of Sh.500, 000 per annum.  Its accountan

Different Evaluation Horizons and MBO Different Evaluation Horizons Managers might undertake projects that are profitable in short-run. Shareholders on the other hand evalu

Sam start business with his savings $20000, a gift from his parents $10000 and a personal loan from his friends of $5000. All money is deposited in a bank account.