TWC issues bullet bonds at 8% , with a ten-year maturity, company will recognize holders of securities
Question:
TWC issues bullet bonds at 8%, with a ten-year maturity, company will recognize holders of securities in amount of $ 1,000. With this information assume that changes and valuation will occur at end of first period. Solve this exercise under following considerations:
Po=i(1+i)nC[(1+i)n1]+(1+in)nNV
Po=(1+i)1C1+(1+i)2C2+......+(1+i)nCn+(1+i)nNV
1. Estimate value of bonds under following guidelines: (a) At nominal or face rate. b) Assuming that market interest 10%, and c) Assuming a market interest of 6%.
2. Perform valuation for conditions a, b, and c, but assuming that valuation is carried out at end of third period. 3. Conclude effect of change in market interest rate, in both cases (1 and 2).
Corporate Finance Core Principles and Applications
ISBN: 978-0077905200
3rd edition
Authors: Stephen Ross, Randolph Westerfield, Jeffrey Jaffe, Bradford