Dear John,
Within this question there is a need to calculate the value of a 13% bond with a nominal value of $40m, which is redeemable at par in ten years.
First of all I calculated the IRR (yield to maturity), which I found to be 15%, then use it as a disount rate to find the value of the bond.
But in the answer, it simply assumes that yield to maurity is 7% and uses it for calculations.
This is the rate at which the company can borrow debt in the future.
I can't understand why to make an assumption, if we can calculate the yield to maturity?