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Loan notes in issue of $100. Nominal int 6% payable annually. Redemption in Y8 at 100+5% = $105. Cost of debt 7%.
Using 7% factors:
My working is Y1-Y6 int at $6.00 * 5.971 = 35.83
and the redemption of $105 * .582 = 61.11
Total value of the note = 96.94.
Correct answer is 94.03?
Please help. Thank you so much.
PS I have posted this on the practise question board also, I hope it is OK to have here also.
Sorry – the correct answer is 96.94
I will have it corrected. Thank you.
Thank you very much for clearing that up.
You are welcome – thank you for spotting the mistake 🙂