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John Moffat.
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Forums › Ask ACCA Tutor Forums › Ask the Tutor ACCA AFM Exams › Kingtim Co. (paper Dec 2020 )
Hello sir,
This may be a silly doubt.
the bond is issued at premium, so I think the first year interest expense after tax maybe
Additional finance cost (BV*YTM*0.75)=(60m/100*109.9*6.43%*0.75) =(3179)
But answer is Additional finance cost ($60m x 7·5% x 0·75) (3,375 )
Can I assume that the answer simplifies the process, it seems to think that this bond is issue at par value.
Many thanks.
No. Interest is always based on the nominal value, regardless of the price at which the bond was issued.