Bond Valuation Case Study

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Bond Valuation Bond is one of the long term-liability. It is a type of debt or promissory note issued by the borrower that promising to pay its holder a predetermined and fixed amount of interest at fixed interval (6 months, 1 year) and pay the par value at maturity. Bond also is referred to as public debt because they can be traded in the public financial markets. Bonds can be classified in a variety of ways. There are unsecured and secured bonds. The unsecured bonds include debentures, subordinate debentures and income bond while the secured bond is mortgage bond. The debentures are the any of unsecured long-term debt. Convertible bonds are normally the debentures. Subordinate debentures are the debenture that is subordinated to the other debentures. It is the claims that are not …show more content…
(b) Give two possible reasons why the rate on similar-risk bonds is below the coupon interest rate on the firm bond/
(c) If the required return were at 12% instead of 10%, what would the current value of firm’s bond be? Compare and contrast the finding with your finding in part a.

3) Paul Walker’s broker has shown him two bonds which are Axiata Bonds an Digi Bonds. Each has maturity of 5 years, a par value of $1,000, and a yield to maturity of 12%. Axiata Bond has a coupon interest rate 6% paid annually. Digi Bond has a coupon interest rate of 14% paid annually.
(a) What is the selling price for each of the bond?
(b) Paul has $80,000 to invest. How many of the bond could Paul purchase?
(c) Calculate the yearly interest income of Axiata Bond and Digi Bond that Paul could buy with his $80,000.
(d) Assume that Paul will reinvest the interest payments as they are paid at the end of each year and that his rate of return on the reinvestment is only 10%. Calculate the value of principal payments plus the value of Paul’s reinvestment account at the end of the 5

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