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HI Sir,
Could please explain that in calculating Annual subsidy benefit examiner used 2.5% instead of 1.5 (2.5-100 basis). why?Ahmad Ali
Thank youIn future please say which exam the question comes from (I can’t remember the name of every question in ever exam 🙂 )
The government yield rate is 2.5% per the question.
Note (v) says that the normal borrowing rate is 150 basis points higher, so is 2.5% + 1.5% = 4%.
The subsidised loan scheme lends money at 100 basis points less than the government debt yield rate, which is 2.5% – 1% = 1.5%.
The subsidy benefit is therefore 4% – 1.5% = 2.5%
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