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Calculating redeemable debt Kd and Yield to maturity question

Forums › ACCA Forums › ACCA AFM Advanced Financial Management Forums › Calculating redeemable debt Kd and Yield to maturity question

  • This topic has 1 reply, 2 voices, and was last updated 3 months ago by John Moffat.
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  • March 30, 2022 at 6:44 pm #652346
    lasid
    • Topics: 3
    • Replies: 0
    • ☆

    How to calculate the cost of redeemable debt, Kd and the YTM (yield to maturity) using the following information?

    (Par value: 100
    Coupon rate: 7%
    Duration : 4 years
    Market value: 97

    March 31, 2022 at 7:32 am #652369
    John Moffat
    Keymaster
    • Topics: 57
    • Replies: 49606
    • ☆☆☆☆☆

    In future you must ask in the Ask the Tutor Forum if you want me to answer. This forum is for students to help each other.

    The YTM is the IRR of the flows to the investor.
    0 (97)
    1-4. 7 p.a.
    4 100 (assuming that the debt is redeemable at par – an exam question would tell you whether or not this was the case).

    The cost of debt is the IRR of the cash flows after tax relief on the interest. An exam question would tell you what the rate of company tax was.

    All of this is explained in my free lectures on the cost of capital (and is revision from Paper FM also).

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