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The loan note is redeemable so we need to do a table and calculate like IRR right? But I used 10% and 15% for IRR and I don’t get the answer. What I don’t understand is why my answer is wrong when we could use any percentage for IRR. Can you tell me
It depends by how much your answer is different. Using two guesses only ever gives an approximate answer and so, as I explain in my free lectures, different guesses will always give a slightly different answer (but will still get full marks in the exam).
However if your first guess was at 10% and you got a positive NPV (as you should have done) then it would have been willy and wrong to make your second guess at 15% because the IRR must be then lower than 10%.
The above is now irrelevant anyway for Paper FM Section C questions because you are provided with a spreadsheet and can use the IRR function. This will give the exact IRR and does not need two guesses.
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