Intel Corporation has an outstanding issue of $1,000-par-value bonds with a 12% coupon interest rate. The issue pays interest semi-annually and has 16 years remaining to its maturity date. If bonds of similar risk are currently earning a 10% rate of return, how much should the Intel Corporation bond sell for today? Describe the two possible reasons why similar-risk bonds are currently earning a return below the coupon interest rate on the Complex Systems bond. If the required return were at 12% instead of 10%, what would the current value of Intel Corporations’ bond be? Contrast this finding with your findings in part a) and explain.
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:
Intel Corporation has an outstanding issue of $1,000-par-
- If bonds of similar risk are currently earning a 10%
rate of return , how much should the Intel Corporation bond sell for today? - Describe the two possible reasons why similar-risk bonds are currently earning a return below the coupon interest rate on the Complex Systems bond.
- If the required return were at 12% instead of 10%, what would the current value of Intel Corporations’ bond be? Contrast this finding with your findings in part a) and explain.
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