A construction firm released a 6% coupon rate bond in 2018 with a face value of £ 1000 and a maturity of 10 years. The bonds have a yield to maturity of 7%. Coupons are paid annually. Imagine that we are now at the end of year 2 and there are just 8 years left. (a) What was the price of these bonds when they were launched in 2018? (b) What is the price of these bonds today? (c) Based upon today's price, what are the nominal and current yields of these bonds? (d) Assuming that the firm has a debt to equity ratio of 2: 9, and that the cost of equity is 8%, what is the firms weighted average cost of capital?
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:
A construction firm released a 6% coupon rate bond in 2018 with a face value of £ 1000 and a maturity of 10 years. The bonds have a yield to maturity of 7%. Coupons are paid annually. Imagine that we are now at the end of year 2 and there are just 8 years left. (a) What was the price of these bonds when they were launched in 2018? (b) What is the price of these bonds today? (c) Based upon today's price, what are the nominal and current yields of these bonds? (d) Assuming that the firm has a debt to equity ratio of 2: 9, and that the
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