Company borrowed 47 m on 1 Dec 2014 when the market and effective rate was 5%. On 30 Nov 2015 company borrowed an additional 45 m when the market and effective rate was 7.4%.
Both are repayable on 30 Nov 2019 and are single payment notes, whereby interest and capital are repaid on that date.
If the two loans were carried at fair value, both the initial loan and new loan would have the same value and be carried at 45 m. I am confused with this statement in bpp kit.
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Bpp kit 42 complexity problem, regarding fair value treatment
7y ago#1Hi,
What is it that you are specifically confused with?
Thanks
How could both the loans have same fair value of 45 m ?
Thanks
7y ago#3The fair value of the second loan is 45 m.
The first loan would be redeemed at approx 60 m (45 increased by 5% for 5 years), and then on 1 Nov 15 this would be discounted back by 4 years at 7.4%, which gives the 45 m.
Thanks
Thank you.
Now it's clear.
The sbr lectures were so interactive. Loved it..
7y ago#5Great, gad you love the lectures. Thanks!
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