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MV of bond is calculated using the formula : Amount of interest(I)/required rate of return (Kd).
What’s the difference between interest and required return (Kd) ??
As required return for bond holders would be interestThat formula is only relevant if the bonds are irredeemable. If they are redeemable (which is more common in the exam) then you need to calculate the present value of future receipts.
The coupon rate (the interest) is based on the nominal value. The required return is that required by investors which is determined by general interest rates and the riskiness of the bonds.
I do suggest that you watch my free lectures on this where it is all explained in detail with examples.
Our lectures are a complete course for Paper F9 and cover everything needed to be able to pass the exam well.
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