Hello All,
This one is troubling me a lot. XYZ company has $10M face value of bonds and are priced to yield 13.65%. Coupon rate = 8% and semi-annual payments are made for 5 years. I need to compute the market value of Debt for estimating WACC.
As per curriculum, Market value of Debt = PV = ~$8M.
However, I am getting only $4.9M
Here’s what I did: FV = $10M; PMT = $400K; N=10; Rate = 13.65% and then computed PV. I would have done this ~5-6 times. Any help?
What’s wrong? Can someone please help me?
Thanks in advance.
Perhaps you should have used Rate = 13.65% ÷ 2.
Thanks S2000magician! You are absolutely right! 
So, the moral is that even yield gets halved for semi-annual debt payments. Thank you so much!
My pleasure.
Yes, everything’s measured in semiannuals: number of periods, coupon rate, and yield.
A more general principle is that you always solve time value problems involving periodic paymants (and that’s all a bond pricing problem is) on a “periodic” basis. If the cash flows take place on a monthly frequency, you use a monthly rate and number of months; if the payment frequency is semiannual (like most corporate bonds), then use the semiannual rate and # of 6-month periods.
Just remember that interest rates (like YTM) are always expressed on an annual basis.