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    Problems in Bond Valuation

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    Maninder Singh
    This document contains 14 problems related to bond and preference share valuation. The problems cover topics such as calculating bond prices given coupon rates, maturity dates, and required rates of return; determining yield to maturity (YTM) for bonds trading at premium or discount; and calculating the present value of preference shares given dividend rates, redemption amounts, and required rates of return. Solving these problems requires the use of time value of money formulas and concepts such as present value, future value, and internal rate of return.

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    Problems in Bond Valuation

    Uploaded by

    Maninder Singh
    282 views4 pages
    This document contains 14 problems related to bond and preference share valuation. The problems cover topics such as calculating bond prices given coupon rates, maturity dates, and required rates of return; determining yield to maturity (YTM) for bonds trading at premium or discount; and calculating the present value of preference shares given dividend rates, redemption amounts, and required rates of return. Solving these problems requires the use of time value of money formulas and concepts such as present value, future value, and internal rate of return.

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    This document contains 14 problems related to bond and preference share valuation. The problems cover topics such as calculating bond prices given coupon rates, maturity dates, and required rates of return; determining yield to maturity (YTM) for bonds trading at premium or discount; and calculating the present value of preference shares given dividend rates, redemption amounts, and required rates of return. Solving these problems requires the use of time value of money formulas and concepts such as present value, future value, and internal rate of return.

    Copyright:

    Attribution Non-Commercial (BY-NC)
    Download as PPTX, PDF, TXT or read online from Scribd
    Download as pptx, pdf, or txt
    282 views4 pages

    Problems in Bond Valuation

    Uploaded by

    Maninder Singh
    This document contains 14 problems related to bond and preference share valuation. The problems cover topics such as calculating bond prices given coupon rates, maturity dates, and required rates of return; determining yield to maturity (YTM) for bonds trading at premium or discount; and calculating the present value of preference shares given dividend rates, redemption amounts, and required rates of return. Solving these problems requires the use of time value of money formulas and concepts such as present value, future value, and internal rate of return.

    Copyright:

    Attribution Non-Commercial (BY-NC)
    Download as PPTX, PDF, TXT or read online from Scribd
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    Problems

    Bond Valuation Model (with maturity) 1. An investor is considering the purchase of a 8% Rs. 1000 bond redeemable after 5 years at par. The investor required rate of return is 10%. What should he be willing to pay now to purchase the bond? 2. Rs. 1000 bond matures in 20 years and offer a 9% coupon rate. The required rate of return is 11%. Compute the bond s value. 3. A Rs. 5000 bond with a 10% coupon rate matures in 8 years and currently sells at 97% is this bond is desirable investment for an investor whose required rate of return is 11%. 4. Face value of a 15% debenture is Rs. 1000. the maturity period of the debenture is 5 years. What is the value of the debenture it the require rate of return is (a) 15% and (b) 12%.

    5. A 7% bond was issued several years ago when the market interest rate was also 7%. Now the bond has a remaining life of 3 years when it would be redeemed at par value of Rs. 1000. the market rate of interest rate has increased to 8%. Find out the current price, price after one year and the price after 2 years. 6. A 2 year bond of Rs. 1000 has interest rate of 10% PA. the interest is paid half- yearly. If the required rate of return is 12%, compute value of bond. 7. An investor holds a debenture of Rs. 1000 carrying a coupon rate of 10% P.A. The interest is payable semiannually. The maturity period of the debenture is 7 years and it is to be redeemed at a premium of 10%. The investor s required rate of return is 12% P.A. calculate the value of the debenture.

    Yield to Maturity (YTM) 8. A Bond Rs. 10,000 bearing coupon rate of 12% and redeemable in 8 years at par is being traded at Rs. 10,600. find the YTM of the bond. 9. The price per bond of Zion ltd is Rs. 90. the bond has a par value of Rs. 100 a coupon rate of 14% and maturity period of 6 years. What is YTM. 10. If the market price of the bond is Rs. 95, years to maturity- 6 years, coupon rate is 13% paid annual. Issue price is Rs. 100, what is YTM. 11. There is a 9% 5-year bond issue in the market. The issue price Rs. 90 and the redemption price is Rs. 105. for an investor with marginal income tax rate of 30% and capital gain tax rate of 10% (assuming no indexation).what is the post tax yield to maturity. Bond Redeemable in Installments. 12. AB ltd is presently selling 10 years debentures of Rs. 10,000 each. The company proposes to repay Rs. 1000 at the end of every year and will pay interest @ 10 % PA. on the outstanding amount. Find the present value of the debenture if its capitalization rate is 12%.

    Preference Share
    Value of preference Share with maturity period 12.Mr. A is considering the purchase of a 10% preference share of Rs. 100 redeemable after 5 years at par. What would he be willing to pay now to purchase the share if his required rate of return is 12%? 13.Mr. X has a redeemable preference share of Rs. 1,000. he receives an annual dividend of Rs.120 annually. what will be its value if its required rate of return is 15% and the share will redeem at 10% premium after 6 years. What is the present value of preference share?

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