CIMA F2 Advanced Financial Reporting F2 Question # 54 Topic 6 Discussion

CIMA F2 Advanced Financial Reporting F2 Question # 54 Topic 6 Discussion

F2 Exam Topic 6 Question 54 Discussion:
Question #: 54
Topic #: 6

ST has in issue unquoted 7% debentures which were issued at par and are redeemable in 1 year's time.  These debentures cannot be traded. The yield to maturity on these debentures has been calculated at 5%.

Which of the following would explain why the yield to maturity is lower than the coupon?


A.

ST will benefit from the tax relief on the interest payment.


B.

The debentures will be redeemed at a discount to their par value.


C.

The debentures will be redeemed at their par value.


D.

The market value of the debentures must be higher than their par value.


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