If you looked at the bond trading pages online or in the newspaper and saw a bond price quote for a $1,000 par value bond of "96.500" you would know the actual dollar price of the bond was:© BrainMass Inc. brainmass.com October 25, 2018, 8:34 am ad1c9bdddf
This solution illustrates the difference between the par, or face, value of a bond and its market price.
Book Value versus Market Value
Filer Manufacturing has 9.5 million shares of common stock outstanding. The current share price is $53 and the book value per share is $5. Filer manufactureing also has tow bond issues outstanding. The first bond issue has a face value of $75 million and has 8 percent coupon and sells for 93 percent of par. The second issue has a face value of $60 million and a 7.5 percent coupon and sells for 96.5 percent of par. The first issue matures in 10 years, the second in 6 years.
a. What are filer's capital structure weights on a book value basis?
b. What are filer's capital structure weights or a market value basis?
c. Which are more relevant the book or market value weights?