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Quiz question Redemption Yeld

Forums › Ask ACCA Tutor Forums › Ask the Tutor ACCA FM Exams › Quiz question Redemption Yeld

  • This topic has 3 replies, 2 voices, and was last updated 10 years ago by John Moffat.
Viewing 4 posts - 1 through 4 (of 4 total)
  • Author
    Posts
  • November 30, 2014 at 11:21 am #214701
    Stefano
    Member
    • Topics: 23
    • Replies: 28
    • ☆☆

    Hi,

    Would you mind helping me with this question?

    RI Co has in issue 6% redeemable bonds quoted at 120% ex int
    which of the following statement is consistent with the above information?

    correct answer:
    interest yield 5%; redemption yield 4%

    interest yield = i/M.V= 5% I get this

    however, what is the redemption yield and how can be calculated?

    Thank you in advance,

    SP

    November 30, 2014 at 3:23 pm #214761
    John Moffat
    Keymaster
    • Topics: 57
    • Replies: 54699
    • ☆☆☆☆☆

    You cannot be asked or expected to calculate the redemption yield. However you are expected to know that it take account of the interest and also the gain or loss on redemption.

    Here there will be a loss on redemption (because the repayment at nominal is less than the current market value) and so the redemption yield must be less than the interest yield (and in only one of the choices is this the case).

    November 30, 2014 at 10:20 pm #214915
    Stefano
    Member
    • Topics: 23
    • Replies: 28
    • ☆☆

    Thanks! 🙂

    December 1, 2014 at 8:53 am #214993
    John Moffat
    Keymaster
    • Topics: 57
    • Replies: 54699
    • ☆☆☆☆☆

    You are welcome 🙂

  • Author
    Posts
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