Hello Tutor,
Could you kindly explain this schedule to me? What is the difference between interest receive and interest income here?
Purchased 8%loan notes = $100000
Effective rate = 10%
Amortisation schedule:
B/d $100000
Interest received = $8000 ( 1000000*8%)
Interest income = $ 10,000 (100000*10%)
Amortisation - cash to be recived = 10,000- 8000 = $2000
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Coupon rate versus Effective interest rate
5y ago#1Hi,
The terminology used here is very confusing. The $8,000 is the interest income recognised through profit or loss. The $10,000 is the coupon cash receipt that reduces the outstanding loan notes balance.
Thanks
Good day sir, the difference between yield and YTM is that yield is for ONE year actual return based on the coupon return and market value of the bond. So bond holder can see their actual earnings in the year.
On the other hand YTM is the average return to bondholder if they hold it till maturity of the bond. Maybe first year the yield could be 6%, second year 7.2%, third year is 7.4% and forth year is 6.7% so the IRR (YTM) will be around 6.8% (for example). So YTM is like what investors will get in average of yield if they hold it till end of the bond matures...
To calculate the MV or rate of return, i can use few ways:
1) (coupon rate * par value)/MV = Rate of return
2) Present value formula
3) Future value formula
May i know what i have written is correct sir? :)
3y ago#3Hi,
This question is linked more to FM that FR so could you please post the query there to obtain your answer?
Thanks
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