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Hi Sir,
I was wondering if the coupon rate should be recognised as finance cost and as such to be shown in the PnL under this heading? For example in the lecture for convertible debentures in OT, in the unwinding of the FL, we treat the coupon rate as cash given and the finance cost is only the effective rate of interest on the PV of the FL. Could you please explain to me under which header in the PnL this coupon rate will be?
Thank you,
GeorgiosHi Georgios,
The coupon rate is the legal rate of interest that determines the amount of cash to be paid by the issuer. This amount is not then charged to finance costs as the cash payment reduces the outstanding liability.
The amount charged to finance costs is based upon the effective rate. Ha look through the videos on financial instruments (ignore the compound instruments for now) and this should help you further.
Thanks
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