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Implication of Ex-Interest & Interest Calculation

Vvedavyas15y ago
This is a doubt from Q50 page 43, answer 50 page 187 of the BPP revision kit.

What is the implication of the usage of the term Ex-Interest on the market value of the loan note, and how have they done the Interest calculation ?
John MoffatJohn MoffatTutor15y ago#1
Ex-int simply means that this years interest has just been paid (otherwise the market value would be higher).
The loan notes are paying 9% on nominal, but the interest is tax allowable at 30% and so the interest payable on $100 nominal is effectively 7*0.7 = 6.30 per annum.
They have then calculate the IRR as usual for redeemable debt.
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