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I was just comparing June 2013 Q2 (Hav Co) with Dec 2012 Q3 (Sigra Co)
in P4 and I saw that in both questions there is a bond offer for the
acquisition. In both questions, the par value of the bond is $100 but in
Hav Co the bond is convertible while in Sigra Co it is just a simple
bond. My question is that in Sigra Co we found the market value of the
2% bond by working out the yield and came to a market value of $92.07
but in Hav Co we didn’t work out the market value of the convertible
bond and just used the par value of $100 to go on with our calculation.
Why couldn’t we do this in Sigra, why couldn’t we just use the par value
of $100 and go on with the calculation and is it because Hav Co are
offering a convertible bond so we don’t work out the market value?Or is it because Sigra gave us enough information to work out the yield
and thus the market value of the bond but Hav Co never gave such
information and there was no scope to work out the market value and thus
just assumed the value to be $100. Please clarify.Thank you but we were told that 3% is the coupon in Hav and we were told it has six years life and will be redeemed at par.
So couldn’t we have calculated the yield and thus the market value on this bond?
Sorry – I answered you too quickly last time.
We do know the coupon rate, but we don’t know the required return, which is what would be needed to get the market value. Also we would need to estimate the future care price (because they are probably expecting to convert rather than take cash) and we don’t have that information. Also we are issuing new bonds and so (certainly initially) the value is $100.
Hi John,
In Sigra co (Dec 12), they have specified to calculate the % gain on a Dentro co share, which means on a per share basis. What if I calculate the % gain on a Dentro co equity value rather than on a per share basis. Will I get penalised because the answer in both the ways is the same.
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