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Example 6 P3 APV

Forums › Ask CIMA Tutor Forums › Ask CIMA P3 Tutor Forums › Example 6 P3 APV

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  • May 23, 2018 at 8:29 am #453513
    svaughan
    Member
    • Topics: 1
    • Replies: 0
    • ☆

    Hi,

    Could you please just clarify why Example 6 in the APV section uses Risk Free Rate of Interest instead of the 6% that is being charged by the Government?

    Is this purely because it is a Government loan which is assumed to be risk free & if it was a bank loan we would use the Pre-Tax interest rate charged?

    Thanks
    Sam

    May 23, 2018 at 1:13 pm #453575
    Ken Garrett
    Keymaster
    • Topics: 10
    • Replies: 10533
    • ☆☆☆☆☆

    There are differences of opinions about which interest rate to use when evaluating the saving. Especially, as you say, the Government is the lender. This year, the majority choice would go for the interest rate being charged (6%), not the risk free rate.

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