Hi Sir,
In financial instrument what is the reason for the coupon rate to be lower than the effective rate ?
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That's a question I have never been asked and one that I couldn't really answer!
The only saving grace is that that question has never been asked in either F7 or P2 and is unlikely ever to be asked
not for xam but for my understanding
Maybe it's because the coupon rate is low to save the annual affect on cash flow but the redemption will be at a premium so that premium needs to be taken into account to calculate the effective interest (coupon) rate
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