Question - On the 1st of July 2011 Mudgee Wines Ltd issues $8 million in four-year debentures that pay interest each six months at a coupon rate of 8% p.a. At the time of issuing the securities, the market requires a rate of return of 10% p.a.
(a) Determine the issue price.
(b) Walton Ltd purchases 50% of the debentures on issue on the date of the issue, and treats the purchased debentures as a financial asset at fair value through profit or loss. The market rate of interest at the 30 June 2012 was 12%. What would be the value of the debentures on Walton's books at the 30 June 2012 assuming Walton Ltd had just received the coupon payment?