Q1 June 2013 Value of unsecured bond

Hi John,

13% unsecured bond with a nominal value of $40m, redeemable in 10 years.

To work out the value of the bond, the solution gave:

Assume a flat yield to maturity of 7%.

Annual coupon interest = $5.2m (13% x $40m)
10 year annuity factor at 7% = 7.024; Discount factor (10 years @ 7%) = 0.508

Bond Value = ($5.2m x 7.024) + ($40m x0.508) = $56.8m

Now I understad what this solution did. It simply discounted the cash flows of the bond repayments. My question is how did the solutions come up with the assumption of 7%. If I assumed a difference % in the exam, surely the value of the bond would change.

It did say much further down in the scenario that the company in question (Milma Co) had a normal borrowing rate of 7%. Is this where the assumption came from? Many thanks.