QUESTION: 21

The yield to maturity of a redeemable bond is calculated as the internal rate of return of the relevant cash flows associated with the bond.
Which TWO of the following are considered relevant cash flows in this calculation?

The annual interest payments net of tax relief.
The redemption value of the bond at the date of redemption.
The market value of the bond now.
The nominal value of the bond now.
The value of the conversion premium on conversion to equity shares.

Answer(s): B,C

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QUESTION: 22

An entity undertakes an issue of new debt which has the effect of reducing the entity's weighted average cost of capital (WACC).
Which of the following would best explain why the WACC will have fallen?

The entity was 100% equity financed prior to the issue of the debt.
The risk to the shareholders has reduced leading to a fall in the cost of equity.
The new debt is being used to replace existing debt that had a lower cost.
The new debt is being used to replace existing debt that had the same cost.

Answer(s): A

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QUESTION: 23

CORRECT TEXT
The capital structure of ST is summarised in the table below:

What is the weighted average cost of capital of ST?
Give your answer as a percentage to one decimal place.

12.7, 12.67, 12.6

Answer(s): A

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QUESTION: 24

XY purchased $100,000 of quoted 8% bonds in the current year which it intends to hold until redemption.
Which of the following identifies the correct classification and subsequent measurement basis for this financial instrument?

A loans and receivables financial asset subsequently measured at fair value with gains and losses in reserves.
A held to maturity financial asset subsequently measured at amortised cost.
A loans and receivables financial asset subsequently measured at amortised cost.
A held to maturity financial asset subsequently measured at fair value with gains and losses in reserves.

Answer(s): B

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