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Dear John Moffat, when calculating cust of bonds by using linear interpolation, there are two prices , one is nominal value, another is market value, i have been told that i should use market value, but in past paper (June 2011) they choose the par value, i am very confused . would you please help me.
many thanksI assume that you are asking about question 2.
We always use market value when calculating the cost of debt, and they have in this question.
You are looking at the workings for the new bond issue, and since they are being issued at par their initial MV is 100.
(I do suggest that you watch our free lectures – they are a complete course for Paper F9 and cover everything needed to be able to pass the exam well).
I assume that you are asking about question 2.
We always use market value when calculating the cost of debt, and they have in this question.
You are looking at the workings for the new bond issue, and since they are being issued at par their initial MV is 100.
(I do suggest that you watch our free lectures – they are a complete course for Paper F9 and cover everything needed to be able to pass the exam well).
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