1. Companies pay rating agencies such as Moody’s and Standard & Poor’s to rate their bonds, and the costs can be substantial. However, companies are not required to have their bonds rated in the first place; doing so is strictly voluntary. Why do you think they do it?
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:
1. Companies pay rating agencies such as Moody’s and Standard & Poor’s to rate their bonds,
and the costs can be substantial. However, companies are not required to have their bonds
rated in the first place; doing so is strictly voluntary. Why do you think they do it?
2. Bond CBA is a premium bond making annual payments. The bond has a coupon rate of
7.5%, a YTM of 6% and has 13 years to maturity. Bond ANZ is a discount bond making annual
payments. This bond has a coupon rate of 6%, a YTM of 7.5% and also has 13 years to
maturity. Given that the face value is $1000 for each bond, what are the prices of these bonds
today? If interest rates remain unchanged, what do you expect the prices of these bonds to be
in three years? In eight years? In 12 years? In 13 years? What’s going on here? Illustrate your
answers by graphing
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