Hi,
I was trying to solve a question on BPP book page 330. I am a bit confused about calculation of market value of below bonds.
-Medium term and long-term loans = $ 210m
This include $ 75m 14% fixed rate bonds due to mature in five years' time and redeemable at par. The current market price of these bonds is $ 120 and they have an after-tax cost of ebt of 9%. Other medium- and long-term loans are floating-rate UK bank loans at LIBOR plus 1, with an after-tax cost of debt of 7%.
Market value Debt:
-Bank loans $ 210m - $ 75m=$ 135m
-Bonds $ 75m x 1.2=$ 90m
where is that 1.2 coming from? Is it assumed that par value of the bonds is $ 100?
Thank you for your help.
Salvatore
Ask the Tutor ACCA FM
Backwood
9y ago#1The market value is $120 for every $100 par/nominal value (as per the question).
So if the nominal value of the bonds is $75M in total, then the market value of them is 120/100 x $75M
Sign into reply to this topic.