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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?
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