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- Topic: My CFA Level II Technical Questions
| Author | Topic: My CFA Level II Technical Questions |
|---|---|
| Cornell @2018-12-03 14:16:31 |
Since I haven't formed/found a study group yet, and I have no one else to ask, I'm going to post my technical CFA Level II questions in this topic group (which I hope wont piss anyone off). If anyone knows of a better place for me to post questions like this, please let me know. First question: I'm reading "Analysis of Financing Liabilities" in the textbook, page 496. Their point about refinancing of debt doesn't seem logical to me. Here's what they say: "Consider two firms reporting the same book value of debt. One firm issued the debt when interest rates were low; the other at higher current interest rates. Debt to equity ratios based on book values may be the same. However, the firm that issued the bonds at the lower interest rate has higher borrowing capacity as the economic value of its debt is lower. Theoretically, it could refinance its current debt at the same interest rate as the other firm, lowering the book value of debt." My understanding of refinancing is that you do it to obtain a lower interest rate, not higher. Where am I off? thanks, David |
| bigman @2018-12-04 10:16:54 |
well, like my old finance professor used to tell us, " In finance, the more you learn, the less you know" your question on the textbook is a good one because it doesn't seem logical to refinance at a higher rate. Might have something to do with economic value vs. bookvalue of debt. Honestly I don't know. However, i do commend you on reading 496 pages of a finance book. |
CFA Discussion Topic: My CFA Level II Technical Questions
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