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Does anybody know which formula they used to get the cost of the redeemable loan stock??? its not IRR !!
The question is:
8%loan stock 2009 is $400.
Loan stock interest is paid annually in arrears and is allowable for tax at corporation tax rate of 30%.(tax payable in the same year)
The loan stock was priced at $98.62 ex-interest per $100 nominal on 30 june 2008. Loan stock is redeemable at par on 30 June 2009.Ans: cost of debt= 32x(1-0.3)+400/(1+kd)=400×0.9862
simplifying:- (1+kd)=22.4+400/(0.9862×400
kd=7.08%(does any one know what formula is this???????????? pls explain…..)
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