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Hello John,
Will you please explain the following?
If company is issuing bond @ premium than we use coupon rate to calculate return and Kd will be calculated through IRR approach
IRR may not applicable, as Kd = Rf + spread. For every period the discount rate is different. There is a SA on bond valuation last year with examples.
@aqadirshaik The return to the investor is also calculated using the IRR approach, but using the pre-tax interest flows.
(dazfong0703’s answer is explaining why they want the return that they do. The market value of the bond is determined as the present value of the receipts they will get discounted at the return they require. So if we know the market value, then we can calculate the return that they must be requiring by calculating the IRR as I have written above)
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