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Dear Sir
mock 3 Q1 current situation
Kd; I get:
6.2 x 1.047 power 4 = 7.45
100/1.047 power 4 = 83.22
total 90.67120million x .9067 = 108.8
Book answer 105.36watched F9 and P4 (looks the same) lectures again and cannot see
Please help….thought I knew this
Regards
The MV is the PV of the future receipts discounted at the investors required rate of return.
You only seem to have taken the receipt in 4 years time.
There is interest each year for 4 years, and the repayment in 4 years time.
So the flows that you should be discounting at 4.7% are:
1 6.2
2 6.2
3 6.2
4 106.2That is what I always do in both my F9 and P4 lectures, and that is what the examiner has done in his answer to this question.
Ok right thanks
and if the final one was a premium of 10% or something it would be 110 + 6.02
Last question: If coupon rates are 6.2% and you have to pay that anyway, what is the point of the interest rate of 4.7%
For your first post – that is correct.
For your second post, it is investors who determine the market value based on the return that they currently require. Just because the coupon rate was fixed at 6.2% when the bonds were issued does not mean they are currently happy with that as a return. General interest rates change and currently they may be able to get a higher (or lower) rate elsewhere. It is the current required return that determines how much they are prepared to pay to invest today.
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