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Please can you explain how they have calculated the value of Pa , why the theoretical price of equivalent bond was not calculated. They have simply discounted it.
Please explain the procedure once.Also can we use normsdist() formula in cbe examination for AFM in BSOP?
Pa is the value of the net assets in the business, which from the SOFP’s is 4.4M + 4.2M = 8.6M.
As far as Pe is concerned, the question says that it should be calculated as the present value of a zero-coupon bond with an identical yield and term to maturity of the current bond.
A zero coupon bond pays no interest, so the only return will be the repayment of $3M in 5 years time. The PV is arrived at by discounting this return at the current yield rate of 5 + 3 = 8%.Yes, you can use the normsdist formula. Do look at the resources on the ACCA website about the CBE version of the exam for details of the formulae available:
https://www.accaglobal.com/gb/en/student/exam-support-resources/professional-exams-study-resources/p4/afm-cbe-introduction.html
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