Covertible loan

What figure did you arrive at? And what are the choices? I calculate it to be around $127,000

And what does the solution say is the correct answer?

I’ve recalculated my figures using the rounded discount factors given in the question and have arrived at $122,000 (rounded)

You’ll need to set up a table showing the cash payments necessary to service this loan

So the table will show the amounts due to be paid, the dates of payment, the discount factor (1 year, 2 years ….) at 14%

The amounts due to be paid will be the interest at the end of each year calculated as 8% x the value of the loan together with the face value of the loan at the end of the fourth year + the 10% premium

Extend all the rows and add the final column to arrive at the present value of those payments

Now, in a new table, left hand column put that present value at the top of the column
Then calculate interest at 14% in column 2
Then in column 3 put in the actual interest to be paid, in brackets, calculated as 8% on the face value of the loan

Now add across and put that resulting figure on line 2 of column 1

Repeat for 4 years and you should arrive at a figure somewhere close to $1,100,000 ie the face value of the loan together with the 10% premium

Now all you have to do is work out the finance charge (column 2) for that year ended 31 December 2016

I’ll leave you to work out a way of allocating interest into that calendar year because the loan was borrowed on 1 July, not on 1 January so there’s going to be some arithmetic agility to arrive at the calendar year finance costs

Where’s this question from? Have I just done your homework?