A company is more likely to call its bonds if they are able to replace their current high-coupon debt with less expensive financing. A bond is more likely to be called if its price is par—because this means that the going market interest rate is less than its coupon rate. Quantitative Problem: Ace Products has a bond issue outstanding with 15 years remaining to maturity, a coupon rate of 8.6% with semiannual payments of $43, and a par value of $1,000. The price of each bond in the issue is $1,220.00. The bond issue is callable in 5 years at a call price of $1,086. What is the bond's current yield? Round your answer to two decimal places. Do not round intermediate calculations. % What is the bond's nominal annual yield to maturity (YTM)? Round your answer to two decimal places. Do not round intermediate calculations. % What is the bond's nominal annual yield to call (YTC)? Round your answer to two decimal places. Do not round intermediate calculations. % Assuming interest rates remain at current levels, will the bond issue be called?
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 company is more likely to call its bonds if they are able to replace their current high-coupon debt with less expensive financing. A bond is more likely to be called if its price is par—because this means that the going market interest rate is less than its coupon rate.
Quantitative Problem: Ace Products has a bond issue outstanding with 15 years remaining to maturity, a coupon rate of 8.6% with semiannual payments of $43, and a par value of $1,000. The price of each bond in the issue is $1,220.00. The bond issue is callable in 5 years at a call price of $1,086.
What is the bond's current yield? Round your answer to two decimal places. Do not round intermediate calculations.
%
What is the bond's nominal annual yield to maturity (YTM)? Round your answer to two decimal places. Do not round intermediate calculations.
%
What is the bond's nominal annual yield to call (YTC)? Round your answer to two decimal places. Do not round intermediate calculations.
%
Assuming interest rates remain at current levels, will the bond issue be called?
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