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Morning John,
A quick question, within Kingtim, when working out the MV of the bonds, how come we do current value * no. of bonds.
Eg. $104 * 0.45m = $46.8m
Usually to work out the MV we would do (104/100) * 0.45m. The MV/100 * No. of bonds.Unsure of why we haven’t taken that approach here.
Thanks in advance
We would only take 104/100 x 0.45M if 0.45M was the nominal value of the bonds on the SOFP.
(We would divide by 100 to get the number of bonds and then multiply by 104 to get the total market value).
In this question we are not told the total nominal value, but we are told exactly how many bonds there are. So the total MV is the number of bonds x 104.
Hi John,
Just as a follow up question, could you kindly let me know when they mention pre tax earnings in the question, how do we know they have already deducted interest from that. I know from reading many of your answers that we can state our assumption and carry on but I wanted to understand how I could interpret that from the question when reading.
Much appreciated
Given that tax is calculated on the earnings after subtracting the interest, we would normally assume that interest will already have been deducted in arriving at the pre-tax earnings.
However always check the wording of the question carefully, and (as you have written) if you are at all unsure then state your assumption.
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