On P.484 of CFAI text Vol 5 (Reading 43) I am confused by the “market value of the loan” & “company’s market value” for fixed-rate and floating rate borrowing. What are the definitions of “market value of the loan” and “company’s market value” ? Shall it be PRESENT VALUE for the loan ? And shall it be the MARKET VALUE OF COMPANY’s EQUITY ?
Anyone can help ? How the company’s (equity?) market value be affected by converting a floating rate loan to a fixed rate loan (and vice versa) ?
Convert from floating to fixed: increased certainty of cash flows, but market value risk increases because of larger exposure to duraton.
bpdulog Wrote: ------------------------------------------------------- > Convert from floating to fixed: increased > certainty of cash flows, but market value risk > increases because of larger exposure to duraton. Do you mean that the duration of the equity (or the company) will increase ? If so, why ?
Furthermore, does “company’s market value” mean its market stocks price x outstanding number of stocks ?
market cap market value of a company is the firm/enterprise value. equity+debt. not looking at the book. confused as to what you are asking.
Any further response ?
what are you asking?
jmac01 Wrote: ------------------------------------------------------- > what are you asking? Why a company’s (equity?) market value will be affected by converting a floating rate loan to a fixed rate loan (and vice versa) ?
if market value is market cap + debt, then the fluct of debt value affects the overall market value. market value of a floating rate note does not change with interest rates.