I know we don’t 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

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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’t 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.