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Dear sir, i dont understand on why 1,320 is considered as shares capital? Because when the 1320/11=120 and why $10*120?
Thanking you in advance
They are buying back shares for $1320M at the current share price of $11. Therefore they will buy back (and cancel) 1320M/11 = 120M shares.
When shares are cancelled, then (as per financial accounting rules) the share capital is reduced by the nominal value (which is $1 per share, and so a total of $120M) and the remaining $1,200M (1320 – 120) is subtracted from the reserves.
Hello
I do not understand how they have calculated Macaulay duration for fixed annual payments, especially the annuity factor part. why have they calculated the annuity factor of 3.57% the d.f is based on the government bond yield. its very confusing please help meI am not sure which part of the answer you are asking about.
I assume you are clear how the 3.57% has been calculated as being the coupon rate (i.e. the rate of interest on the nominal value).
However a company choose the repay its borrowing (whether to repay just the principal over the period and then all the interest at the end, or whether to pay the interest each year and the principal at the end, or any combination) then the PV of all of the repayments when discounted at the coupon rate will always be equal to the amount originally borrowed.
Here, they are paying an equal amount each year (covering both interest and the principal) and so if the amount each year is X then the PV of the payments is X x the annuity factor and this must be equal to the original amount borrowed.
Therefore X (the repayment each year) multiplied by the annuity factor at 3.57% must be equal to the amount borrowed. So X is equal to the amount borrowed divided by the annuity factor.
Yes, I understood that, sorry for not being clear before but why the annuity factor of 3.57%, why not the annuity factors of any of the govt bond yield?
Because 3.57% is the coupon rate (the fixed interest on nominal) that will need to be paid on the new bond.
Good day sir, may i know why the answer has mention a line in the report area under IMPACT OF CONEJO CO that coupon rate for new bond is lower than existing bond is because the interest rate is lower so they dont have to issue higher coupon rate…
May i know how the concept work sir….
Is it like if the market interest rate is offering a return of (5%) then coupon rate needs to be higher(6%) to attract bondholders to buy their bond, since maybe in the question the market rate is already low(3.4% example), so conejo dont have to issue much higher coupon rate to attract bondholders to buy them?This is because bondholders will compare and see whether conejo is giving higher return or the market interest rate is higher by the bank?
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