19 March 2009
I've doubt in one example question form COST OF CAPITAL, pls help me to solve. The Q is: X Ltd. issued Debentures having face value Rs.1000, rate of interest @ 20%. Issue is before 6 years. Investor's current required rate of return has increased to 25%. Calculate return to investors, if current market price is Rs.750.
The solution is as :-> Rs.1000*20%/750*100 = 26.67%.
My question is, if the current market value is less than the face value, then how could the return computed is more than the required rate of return?
CAclubindia
