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Hi Mike, I am struggling to understand Example 1 covering borrowing costs in chapter 6. Not quite sure why the example was not covered in the lectures either…What I don’t understand is the figures from the answer for “Invested” – 50,20,90,30,90 and “Spent” – 50,30,50,60,20,90. The first invested is fine, but we don’t have any 50 spent in the same period? Then in Feb there is no 20 invested? …or 50 spent in April…or 30 invested in May…or 90 invested in Aug?
Either I am lacking very basic maths or there is something wrong with the question.
Any advice will be much appreciated…Please, help…Hi
When the first 100 was borrowed from the lender, how much was spent immediately? Answer – 50. So what happened to the other 50? Invested! Then the borrower draws out 30 of the 50 which had been invested. That then left 20 invested ( ie 50 – 30 ) and explains the “30 spent”.
Then another 120 was drawn from the bank of which 50 was spent immediately. The remaining 70 was invested and therefore the invested amount rises from 20 ( preceding paragraph ) to 90. After that, 60 was drawn out of the invested amount leaving 30 and the 60 was spent
Etcetera, etcetera
OK?
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