Example of valuation of bonds and debentures, Finance Basics

Assignment Help:

Example of Valuation of Bonds and Debentures

K is contemplating purchasing a 3 year bond worth 40,000/= carrying a nominal coupon rate of interest of 10 percent.  K necessary rate of return is 6 percent.

What must he be willing to pay currently to purchase the bond if it matures at par?

Solution

Int  =       10 percent x 40,000 = 4,000 p.a.

n    =        3 yrs

Kd  =        6 percent

M   =        40,000

Vd  = 4,000 / (1.06)1 + 4,000 / (1.06)2 +4,000 / (1.06)3 +4,000 / (1.06)3      

      = 4,000 x PVAF6%,3 + 40,000 x PVIF6%,3 = (40,000 x 2.673) + (40,000 x 0.840)

      = 44,292


Related Discussions:- Example of valuation of bonds and debentures

Time value of money, One of the projects the US loan would fund is to build...

One of the projects the US loan would fund is to build earthquake-resistant buildings. The project will begin in March 2013, last for two years and is expected to have the followin

Differences between an ordinary annuity and an annuity due, 1. Describe the...

1. Describe the similarities and differences in between an ordinary annuity, an annuity due, and perpetuity.  Provide a methodical answer, including examples to demonstrate your po

Time value of money, How to calculate the present value of assignment??

How to calculate the present value of assignment??

Liquidity preference theory, Liquidity Preference Theory This theory s...

Liquidity Preference Theory This theory states that short term bonds are extremely favorable than long term bonds for two (2) purposes. 1. Investors usually prefer short te

Factors of capital structure, Factors of Capital Structure 1. Availab...

Factors of Capital Structure 1. Availability of securities - This influences the company's employ of debt finance that means such if a company has enough securities, so then

Growth rates and hypothetically, Growth Rates Most ...

Growth Rates Most Recent Fiscal Year Fiscal Year (-1) Fiscal Year (-2) Fiscal Year (-3) Annu

Should the short-run effects on eps influence the ch, A firm has a $100 mil...

A firm has a $100 million capital budget. It is considering two project, each costing $100 million. Project A has an IRR of 20%; has an NPV of $9 million; and will be terminated af

Define the terms proprietorship, Briefly define the terms proprietorship, p...

Briefly define the terms proprietorship, partnership, and corporation. Ans: The term proprietorship is used as a business owned by one person. Two or more than two people wh

C.O.L.A., What are some good examples of C.O.L.A?

What are some good examples of C.O.L.A?

Return on equity, Maghrabi Enclosure follows a moderate current asset inves...

Maghrabi Enclosure follows a moderate current asset investment policy, but it is considering whether to shift to a different strategy. The firm''s annual sales are $500,000; its f

Write Your Message!

Captcha
Free Assignment Quote

Assured A++ Grade

Get guaranteed satisfaction & time on delivery in every assignment order you paid with us! We ensure premium quality solution document along with free turntin report!

All rights reserved! Copyrights ©2019-2020 ExpertsMind IT Educational Pvt Ltd