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Hi John
Page 71 ex 1 (b) the question states that “investors required return on debentures is 10%” so the solution at the back gets the present value of the interest and redemption to calculate the debentures current market value. The solution says ‘d.f.@ 10%’ which makes sense, however the actual annuity and discount factors used appear to be 8% figures (8% happens to be the coupon rate) . Can you clarify which rate is correct. I would imagine it’s 10% but just checking? Do you think this type of question, to calculate the ‘conversion premium’ might come up in the exam?
Cheers
Hugh
It is my mistake – sorry 🙁
I think I am correct in saying that the examiner has asked for the conversion premium only once – rather a long time ago.
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