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Theoretical redemption value

Forums › Ask ACCA Tutor Forums › Ask the Tutor ACCA AFM Exams › Theoretical redemption value

  • This topic has 3 replies, 2 voices, and was last updated 9 years ago by John Moffat.
Viewing 4 posts - 1 through 4 (of 4 total)
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  • March 6, 2016 at 3:14 pm #303849
    hermine
    Member
    • Topics: 26
    • Replies: 34
    • ☆☆

    I can’t remember within the context of what I read about theoretical redemption value?
    And don’t know when it can be necessary to calculate it and how.

    Could you please remind me?

    March 6, 2016 at 9:15 pm #303911
    John Moffat
    Keymaster
    • Topics: 57
    • Replies: 54760
    • ☆☆☆☆☆

    There is no such term as ‘theoretical redemption value’ 🙂

    March 9, 2016 at 9:00 am #304658
    hermine
    Member
    • Topics: 26
    • Replies: 34
    • ☆☆

    I found it. We need to calculate the theoretical redemption value of a zero coupon bond ti find the debt redemption value, which is used for calculating the equity value using Black scholes.

    March 9, 2016 at 9:50 am #304677
    John Moffat
    Keymaster
    • Topics: 57
    • Replies: 54760
    • ☆☆☆☆☆

    Now it makes sense (on its own it means nothing).

    Zero coupon bonds pay no interest, so the only return to investors is the gain that they effectively make on redemption. The theoretical redemption value is that redemption value that makes the annualised return equal to that required by investors.

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