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Hi John,
I am doing question 84, page 22, Bold Co December 2011. The question states that, ‘ the interest rate onn the advance would be 2% higher than the 7% that Bold co currently pays on its overdraft.’
I have worked it out as 9% (7+2%) * 2042466*0.8 as the question states 2% higher. Could you please guide me ?
That is fine – they will be paying the factor 9% of that amount.
However, they will also have the saving of overdraft interest on the same amount at 7%.
You can either show the two items separately, or (as the examiner did in his answer) just show the net cost of 2% of the amount.
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