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    • The question asks for the market value. The market value is determined by the investors – it is the present value of the future receipts discounted at the investors required return.
      Investors are not affected by company tax – the receive the full interest.
      The tax rate is only relevant when calculating the cost of debt to the company.

      This is something that the examiner often asks, and I do suggest that you watch my free lectures. They are a complete free course for Paper F9 and cover everything needed to be able to pass the exam well.

  2. Dear sir,

    For Question # 11,
    We have the formula for conversion premium as = MV of each $100 loan note – Current conversion value of $100 loan note.

    In this question, the market value we calculated is $83. The current conversion value I calculated is $90 (25 shares * 3.6 current MV)

    So the conversion premium of each $100 convertible loan note = MV of $83 – Current conversion value of $90
    I am getting the conversion premium of = $ -7

    I have the following questions:
    1. Is it correct in negative?
    2. Most often, it is expressed on a per share basis = -7/25 = $-0.29?
    3. Most often, it is also expressed as a % of MV = -7/83 = $-0.088?

    Thanks 馃檪

    • This question does not ask for the conversion premium.
      Usually it will be a premium – the figures in this question are unusual.
      It is certainly not expressed on a per share basis – it is expressed on a loan note basis.
      It is not usually expressed as a percentage.

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