Question: The market rate of interest for a certain class of debenture is 4 per cent. It is possible to identify the following four debentures in

The market rate of interest for a certain class of debenture is 4 per cent. It is possible to identify the following four debentures in the market that meet the requirements of the class.

Coupon rate on issue

Big gun 3.5%

Toy soldier 3.0%

rumbler 5.0%

gatsby 6.0%

a)If the only characteristics of the debenture that is different is the coupon rate, rank the debentures from high to low in terms of market price

b)How would the ranking change (if at all) if the terms to maturity are as follows?

Big gun - 3 years

Toy soldier - 6 months

rumbler - 2 years

gatsby - 1 year

c)Would your answers to (a) and (b) change if the debt instruments were called 'bonds' instead of 'debentures'?

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