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Hi, i have some confusion regarding Dec 2011 F9 Close Co.
What is the difference between “8% Bonds” and “before-tax cost of debt 7%” mean?
Thank you.
8% is the coupon rate (the interest on nominal); 7% is the return to investors.
You really need to watch my lectures on the valuation of debt, where all of this is explained (and I cannot type them all out here).
The lectures are a complete free course for Paper F9 and cover everything needed to be able to pass the exam well.
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