The ARA Corporation bonds have a coupon of 14%, pay interest semi-annually, and they will mature in 7 years. Your required rate of return for such an investment is 10% annually. 1. How much should you pay for a $1,000 ARA Corporation bond? 2. If you are given RM90,000, how many units of bond can you purchase? 3. What is the yearly interest income for this bond if I purchase it with RM90,000?
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:
The ARA Corporation bonds have a coupon of 14%, pay interest semi-annually, and they will mature in 7 years. Your required
1. How much should you pay for a $1,000 ARA Corporation bond?
2. If you are given RM90,000, how many units of bond can you purchase?
3. What is the yearly interest income for this bond if I purchase it with RM90,000?
4. You plan to reinvest the coupon interest at 12% rate of return per annum. Calculate the value of the reinvestment, what is the figure will you get at the end of 7th years with your principle.
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