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hi,
in the first example in OT notes (chapter 9), second part, why do we have 711 interest accrued when we have already paid 3000(including interest) in advance at the start of the year (2011).
should we not call that 711 as unwinding of discount factor?
I am a little confused between the two.Hi,
The interest accrues on the outstanding capital balance, so given we’ve paid 3,000 at the very start of the lease, as we’re paying in advance, then we apply the interest rate to the 10,161 (=13,161-3,000). Using the 7% we get the 711 interest charge.
Thanks
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