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Cost of debt for redeemable bond.
Sir please to calculate the cost of dept using irr, how to choose rate? For this case I chosen 10% and 5% but the answer used 8% and6%. Why the answer is different?
The bond rate is 9%
ThanksYou do need to watch our lectures on IRR and on the cost of debt, because I do mention this!!
Using different guesses will always give a slightly different answer because the relationship is not linear. However, if you have done your arithmetic correctly you will still get full marks even though your answer will be slightly different (unless, obviously, the question tells you which guesses to use).
For that reason it is vital (as always in Section B) to set out your workings neatly so that the marker can check that you are doing it correctly.
(If your answer is more that 1% different then you have almost certainly made a mistake)
Suppose the examiners answer has an IRR of 12%.
If you have used different guesses then you will have a slightly different answer (and will still get full marks).
However, if you get an answer more than 1% different (e.g. if your answer is 13.6%) then it will almost certainly mean than you have made a mistake in your workings. On the other hand, if your answer is 12.4% then you have probably done everything correctly and will get full marks.Have you watched our free lectures on this, because I do explain this in the lectures?
Our free lectures are a complete course for Paper F9 and cover everything needed to be able to pass the exam well.
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