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Is it true that calculating the interest of the borrowings or investments depends on the different methods that can be used for the calculation?
Can you please also explain that how many methods are used for different borrowings & investments purposes such as Bank Overdraft, Bank Loans, Long-term Borrowings such as Bonds & Debentures?
If a company is borrowing a bank loan or bond then it is the bank who will tell that on what methods they are lending the money on!
What you are asking is not relevant for Paper MA.
For bank loans and other long-term borrowings, the interest rate will always be quoted as an annual interest rate. (Bonds and debentures are not borrowings from the bank, but again the interest rates quoted are always annual rates).
For overdrafts, the interest is more likely to be charged on a daily or monthly basis (that is up to the bank), but they are also required to state the effective annual rate as explained in my free lectures on interest.
1) Interest can be quoted as annual interest rate but I don’t get it whether they are calculated as we calculate simple interest or they can be compounded interest where we have to use compound interest calculation because from your lecture I have learned about two interests (simple interest and compound interest)?
Secondly, if I do get this right then you’re saying that Bonds & Debentures are not borrowings from the bank but they are issued by big companies!?
2) Is it true that if the interest is charged daily, monthly, quarterly or semi-annually they are compounded as such and we can calculate the interest from this compound interest formula
P (1 + r)^n
1. Interest on long-term loans is always quoted as an annual rate, and as such the distinction between simple and compound interest is irrelevant.
Bonds and debentures are the same thing and have nothing to do with banks (and are not examined in Paper MA),
2. Yes, and I explain this in my free lectures.
You presumably have a Revision Kit from one of the ACCA Approved Publishers, so it will be better if you ask about any of the questions in it that you are having problems with.
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