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Hi,
I’m currently using a revision class, and just cannot work out how they have discounted down the interest figure of this question – I have watched lectures, gone back to F2 (MA) and just cannot work out how they have got to this figure.
4% £100,000 Convertible Payable Loan for 5 years… Rate without convertibility is 10%.
Capital – £100,000 discounted to 0.62092 (I understand this part!)
Interest – £4000 discounted to 3.79 (this figure I can’t understand!)
Please advise. I keep coming to a figure of 3.62
Thanks
Hi,
The 3.79 is the five year annuity factor. The easiest way to get it is to add up the discount factor for each of the years one to five, which will give you 3.79.
If you are using the annuity factor formula then you must be typing it into your calculator incorrectly.
The good news is that you will be given the discount factors, so will be able to work the annuity factor from that, using what we’ve said above.
Thanks
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