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Backwood

Forums › Ask ACCA Tutor Forums › Ask the Tutor ACCA FM Exams › Backwood

  • This topic has 1 reply, 2 voices, and was last updated 8 years ago by John Moffat.
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  • January 8, 2017 at 7:08 am #365481
    Salvatore
    Member
    • Topics: 21
    • Replies: 59
    • ☆☆

    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

    January 8, 2017 at 7:52 am #365560
    John Moffat
    Keymaster
    • Topics: 57
    • Replies: 54696
    • ☆☆☆☆☆

    The 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

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