# Upper Limit of Debt

I’m trying to understand this statement:

The upper limit (of debt) is equal to the undiscounted sum of the principal and remaining interest payments (i.e. the PV of these contractual payments at a zero percent discount rate)

I am a bit embarassed but I literally have no understanding of what this is saying.

If the loan is \$100 dollars and I have repaid \$50, therefore I have \$50 left to repay.

If the discount rate is 0% then the outstanding interest is \$0 and I have to repay just the principal, so if anything, the amount of debt will go up if interest rates are >0%. If interest rates are negative, then you would be receiving money from the lender which means there is less debt outstanding.

ie the maximum value of debt = actual principal and interest amount.(no discounting ) if you use any discount rate to make it to present value it will be debt / discount rate and thus would reduce the amount of debt.

Suppose that you issue a 10-year, \$1,000 par, 6% coupon, semiannual pay bond.

What’s the highest market value for which that bond could sell?

The answer depends on the lowest YTM at which it could trade. If you believe (reasonably) that the YTM cannot be negative, then the highest market value would occur at a YTM of 0%; at that yield, the market price is \$1,600.

Thanks, I now understand.