- This topic has 1 reply, 2 voices, and was last updated 6 years ago by .
Viewing 2 posts - 1 through 2 (of 2 total)
Viewing 2 posts - 1 through 2 (of 2 total)
- The topic ‘Cost od debt capital’ is closed to new replies.
OpenTuition recommends the new interactive BPP books for June 2024 exams, Get your discount code >>
Forums › Ask ACCA Tutor Forums › Ask the Tutor ACCA FM Exams › Cost od debt capital
Henryted has 12% irredeemable bonds in issue with a nominal value of $100.The market price if $95 ex interest.Calculate the cost of capital if interest is paid half yearly?
Well i am ok with solving such questions but this half yearly thing is beyond me.
The answer is (1+6/25)^2 -1 =13%
why is the examiner taking a square and then subtracting it by 1?
It is using the compound interest rule.
If r is the six monthly rate, and R is the yearly rate, then (1+R) = (1+r)^2 because there are 2 six month periods in a year.
I don’t think that the examiner has ever asked this in relation to the cost of debt. However the principle has been asked lots of times in other question – in particular when looking at the cost of giving discounts to receivables as you will see in my free lectures.