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ques Sigra Co dec 2012
can u help me with the bond calculation in part b ?
thank youI assume you actually mean part (a), because part (b) does not require any calculations 🙂
First we need to calculate the investors required rate of return on the existing debt. We do this in the normal way by calculating the IRR. (The examiners answer has used 4% and 5% as the two ‘guesses’ but any two guesses would have done,even though the answer would be slightly different).
Having calculated the required return on the existing debt (4.55%), we then value the new debt in again the normal way, calculating the MV and the PV of the flows discounted at the same required Arte of return.
but i dont get it how he used $106 on redemption as the question says it will redeemable at par $100
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