Bond valuation – Knowsia

FM – L2 – Q18 – Business valuations

Calculate the value of a zero coupon bond and an 8% coupon bond, both redeemable in 10 years, with a 5% investor yield.

Question

(a) Calculate the value of the following bonds:

(i) a zero coupon bond redeemable at par in ten years’ time

(ii) a bond with an 8% coupon, with interest payable half-yearly, and redeemable at par after ten years.

Assume that the yield required by investors is 5%, and that this is 2.5% each half year for the purpose of valuing the 8% coupon bond.

(b) Calculate the value of both bonds in part (a) of the question if the yield required by investors goes up by 1%, to 6% for the zero coupon bond and 3% each half year for the 8% coupon bond.

Answer

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Tags: Bond valuation, Coupon bond, Discounted cash flow, Yield change, Zero coupon bond
Level: Level 2

Topic: Business valuations

FM – L2 – Q15 – Business valuations

Estimate market value of irredeemable 7.5% bonds with 9% required return.

Question

Assume that bond investors in Ama Industries require a return of 9% per year on their investments.

Required:

(A) Estimate the market value of irredeemable 7.5% bonds that pay interest annually.

(B) Estimate the market value of bonds paying coupon interest of 6% per year annually, that are redeemable at par in four years’ time.

(C) Estimate the market value of bonds paying coupon interest of 10%, redeemable at par after three years, where interest is payable every six months.

(D) Estimate the market value of a convertible bond with a coupon of 5% and interest payable annually; these bonds are convertible after three years into equity shares at the rate of 20 shares for every GH₵100 nominal value of bonds. The expected share price in three years’ time is GH₵7.

Answer

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Tags: Bond valuation, Business valuations, Interest rate, Irredeemable bonds
Level: Level 2

Topic: Business valuations

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FM – L2 – Q18 – Business valuations

Calculate the value of a zero coupon bond and an 8% coupon bond, both redeemable in 10 years, with a 5% investor yield.

FM – L2 – Q15 – Business valuations

Estimate market value of irredeemable 7.5% bonds with 9% required return.

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Tag (SQ): Bond valuation

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FM – L2 – Q18 – Business valuations

Calculate the value of a zero coupon bond and an 8% coupon bond, both redeemable in 10 years, with a 5% investor yield.

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FM – L2 – Q15 – Business valuations

Estimate market value of irredeemable 7.5% bonds with 9% required return.

You're reporting an error for "FM – L2 – Q15 – Business valuations"

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