This part of question 4 asked candidates to calculate and discuss the effect of buying back bonds on the financial risk of the company, looking at interest cover and gearing. While most answers were able to calculate both ratios correctly before buying back bonds, calculations of the ratios after the buy-back were of variable quality.

At this level, ratio definitions should not be a reason for losing marks, and it was surprising to see answers where interest cover or gearing were calculated incorrectly. The question also required the use of the book value debt to equity ratio, so calculations using market values or debt divided by debt plus equity gained little credit. Most answers correctly indicated that financial risk would decrease.