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Dear sir,
This is with regard to the Lecture under Chapter 3 of the F2 syllabus- Convertible Debt.
In the video, while explaining the working out of the Example (Hunt), while constructing the table having time period, cash outflows, discount factors and present values, we have taken the initial outflow to be $110.
Isn’t this wrong?
The initial outflow should be $100, as the debt is in $100 units. $110 is the present market value on which the debt is traded. The company itself would not have got $110.
Why have we taken $110 here instead of $100.Thank you so much.
RegardsHi,
The convertibles are already in issue and so the proceeds would have been received in the past, so therefore are not relevant. What is relevant is the current market value as that is what they are worth if they were to be sold, hence we use the $110, current market value.
Thanks
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