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Hi,
I’m a little confused on how KD was calculated on question 12c and 12d.
For 12c, when calculating KD. For year 0 I got -90 but the answers state -78.
For 12d, when calculating KD. For year 0 I got -95 but the answers state -90
For 13b, I used -75 which was the same as the answers.
Can you please let me know where I’m going wrong?
Thanks
In 12c and 12d, the interest is about to be paid and therefore the MV’s quoted are cum int.
We need ex int values and so you need to subtract the interest about to be paid.
Thanks for the help.
So we need to be aware of keywords such as ‘interest been paid’ or ‘ex interest’ meaning you just use the value in the question.
If it states ‘market value’ or ‘interest shortly to be paid’ then always deduct the interest.
The word market value on its own does not indicate whether it is cum or ex interest (or in the case of shares cum or ex div).
If the question says that interest is about to be paid (or dividend is about to be paid) the it is cum int (or cum div).
If the question says nothing then we always assume that the market value is quoted ex int (or ex div).I do go through all of this in the free lectures – I hope you are not using the notes without the lectures, because it is in the lectures that we explain and expand on the notes.
The word market value on its own does not indicate whether it is cum or ex interest (or in the case of shares cum or ex div).
If the question says that interest is about to be paid (or dividend is about to be paid) the it is cum int (or cum div).
If the question says nothing then we always assume that the market value is quoted ex int (or ex div).I do go through all of this in the free lectures – I hope you are not using the notes without the lectures, because it is in the lectures that we explain and expand on the notes.
Thank you for the help.
I did watch the lectures once. I believe I need to go through this again.
Also I haven’t seen any questions in the BPP revision book where market value quoted are cum interest.
Whether or not BPP has any questions is not really relevant – it has happened in the real exam (either shares quoted cum div, or bonds quoted cum int), which is why I cover it in the lectures.
However, it has not happened often and usually there is no indication of whether the MV’s are cum or ex. In that case (as I wrote before) you always would assume they were ex div/ex int values.
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