It’s just a way of spreading out the cost of the loan over its life.

I actually think it’s needlessly complex as well and also means (in the case of receivables) that you’re paying tax on money you haven’t even received yet, but such is accruals.

In any case it’s not our job to question if something’s a good idea, we just have to learn the mechanics of it for the exam.

I have a quick question on the example 2 from Chapter 11 lectures in relating to financial liabilities. What confuses me is that at 13:23 we can see B/F+ Financial Cost – Coupon =C/F. I am not quite sure why the financial cost needs to be added onto the money that we received from issuing shares. Who is liable to the financial costs here? Thanks.

This chapter (Financial Instruments) also contain a topic called Factoring of Receivables. May I know why haven’t you posted a lecture on that? Thanks.

I know we don鈥檛 need this but can you please explain how to calculate the IRR in the example given in this video?

I have tried the following: total inflows divided by outflows (2,260,000/1,900,000), raise that to the power of (1/4) ie 0.25 because there are 4 time periods, then subtract 1.

Calculating IRR considering the premium and also costs is challenging to do without Excel.

EIR can be calculated as a rate at which sum of discounted CF’s would be equivalent to Amortised cost at the recognition date. With excel it’s basically linking formulas to EIR and changing EIR until the sum of CF’s would be close to AC on Y0.

Summed up to 1,898,829 (just 1,171 difference from 1,900,000)

Or EIR can be found as a result of several iterations, by taking two potential rates, calculating NPV for both, calculating EIR as r1+(NPV1/(NPV1-NPV2))*(r2-r1), then applying it to find Amortised cost. And then narrowing the possible r1 and r2 until Amortised cost with EIR will be equal to Carrying amount at the recognition date.

really you are the best- I was excepted from F7 and going through SBR, I thought no I am done for on this one. then I went back to ur lectures on F7 and life came back to earth. would have just give up on SBR without ur superb lectures. you the best. now I can go back studying SBR knowing all the terminologies. THANK YOU

fahim231 says

Hello,

What are the journal entries for the initial incurred issue costs of 100,000?

Abenagogoi says

Please,how did we get the principal of 2,100,000

tules says

You don’t need to make an entry. The issue costs are simply netted against the proceeds. Hence the initial net proceeds of $1.9m rather than $2m.

emuszynski says

You don’t put 20000 * 100 in brackets prior to – sign. This is like grammatical error in maths.

Ehsan123999 says

A thousand thanks from Afghanistan to OpenTuition and Mr. Chris.

Ps. Sir, say that the chapter is easy so we could fool ourselves and think it is easy. Then we can learn better. 馃檪

Lilit says

HI, My question is the following,

Why we need effective rate at all. I understand calculations but have no idea why we are doing it like this.

tules says

It’s just a way of spreading out the cost of the loan over its life.

I actually think it’s needlessly complex as well and also means (in the case of receivables) that you’re paying tax on money you haven’t even received yet, but such is accruals.

In any case it’s not our job to question if something’s a good idea, we just have to learn the mechanics of it for the exam.

qilianm says

Hi,

I have a quick question on the example 2 from Chapter 11 lectures in relating to financial liabilities. What confuses me is that at 13:23 we can see B/F+ Financial Cost – Coupon =C/F. I am not quite sure why the financial cost needs to be added onto the money that we received from issuing shares. Who is liable to the financial costs here? Thanks.

akkifan says

This chapter (Financial Instruments) also contain a topic called Factoring of Receivables. May I know why haven’t you posted a lecture on that? Thanks.

Abdul says

why we need effective rate of Interest? What is the use in reality?

James says

Hi these videos are great, thanks a lot!

I know we don鈥檛 need this but can you please explain how to calculate the IRR in the example given in this video?

I have tried the following: total inflows divided by outflows (2,260,000/1,900,000), raise that to the power of (1/4) ie 0.25 because there are 4 time periods, then subtract 1.

That all gives me an incorrect rate of 4.43%.

What am I doing wrong?

Thanks

mariakurina says

Calculating IRR considering the premium and also costs is challenging to do without Excel.

EIR can be calculated as a rate at which sum of discounted CF’s would be equivalent to Amortised cost at the recognition date. With excel it’s basically linking formulas to EIR and changing EIR until the sum of CF’s would be close to AC on Y0.

40,000/(1+4.58%)^1 = 38,248

40,000/(1+4.58%)^2 = 36,573

40,000/(1+4.58%)^3 = 34,971

2,140,000/(1+4.58%)^4 = 1,789,037

Summed up to 1,898,829 (just 1,171 difference from 1,900,000)

Or EIR can be found as a result of several iterations, by taking two potential rates, calculating NPV for both, calculating EIR as r1+(NPV1/(NPV1-NPV2))*(r2-r1), then applying it to find Amortised cost. And then narrowing the possible r1 and r2 until Amortised cost with EIR will be equal to Carrying amount at the recognition date.

mutiat28 says

really you are the best- I was excepted from F7 and going through SBR, I thought no I am done for on this one. then I went back to ur lectures on F7 and life came back to earth. would have just give up on SBR without ur superb lectures. you the best. now I can go back studying SBR knowing all the terminologies.

THANK YOU

ahmed58 says

best teacher ever

udesay says

Excellence!!

mohsin17222 says

Why we take redeemable rate 1.05 instead of 0.05?

P2-D2 says

Hi,

Is it not because it is redeemable at 5% above the par value, so we are adding 5% to the original amount and hence 1 plus 0.05?

Thanks

arpansaha12 says

Really superb.

P2-D2 says

Thanks, glad you’re enjoying the videos.

tules says

Really Chris, you are imo the best OpenTuition tutor. Your videos are the most concise and clear.