AuthorTopic: Interest Rates & The Market Value of Debt
keltapera
@2014-04-10 20:41:34
Hey Everyone.

I canít seem to wrap my head around this concept:

ďAn increase in interest rates results in a decline in the market value of the debt and lower debt used for analysisĒ (analytical purposes, not accounting).

Anyone chime in on why this is?
shekharh
@2014-04-23 22:32:20
As the discount rate increases the net present value decreases. This would reduce the market value of the debt. That sentence is basically saying that you could buy the debt back at the now lower market price so you may want to factor that lower price into the analysis.

From a practical perspective, business valuation professionals will sometimes use the market value of debt, not the book value of debt, to arrive at a valuation of the equity in their analysis.

CFA Discussion Topic: Interest Rates & The Market Value of Debt

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I used your notes and passed ... highly recommended!
Lauren

Lauren