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Good Afternoon
I am currently completing the Sept/Dec 2020 Sample Question, I am confused as to the calculation for the MV of the bonds.
It is stated ‘It also has 0·45 million 6·5% bonds in issue. Each 6·5% bond has a nominal value of $100, and is currently trading at $104 per $100.’
Usually I would calculate the MV as $104/$100*0.45m, however this isn’t correct
What wording/terminology should I watch out for in each question so I know when not to divide it by 100 nominal?
Many Thanks
Emma
What you have written would have been correct if the nominal value of the bonds was given as $0.45M.
But that is not what is written in the question. The question say that there are 0.45M bonds in issue. Given that the bonds have a nominal value of $100, the total nominal value is
$0.45 x $100 = $45M, and therefore the total MV is 104/100 x $45M = $46.8M (as per the answer).Although that does not take long, it is rather wasting time. If there are 0.45M bonds in issue, and if each bond has a MV of $104, then the total MV is 0.45M x $104 = $46.8M 🙂
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