1. Profile photo of cecel says

    Hi John,
    I need a little clarification. The company repays $5 interest per year but what does the 6.25 % interest means(5/80*100)? Do they give the debenture holder this amount as the large discount?

    • Profile photo of John Moffat says

      The company is paying 5% on the nominal value.

      However if investors are prepared to pay $80 on the stock exchange in order to get $5 a year interest, it must mean that they are currently requiring a return on 5/80 = 6.25% (because it is investors who fix the market value – if they wanted a higher or lower return they would fix a different market value).

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