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Hi,
It is stated that a loan will be repaid at 20 years in premium of $5m. Does this mean that the loan will be paid at $65m?Or the premium is separately recognised only in p/l using effective cost.
Thank you..
Assuming the loan principle is $60m – yes, exactly that. (I don’t have the question to hand.)
Your “or ….” is incorrect – it should be AND …. although the extra $5m cash flow is when the liability is finally repaid, this additional finance cost (over and above the 6% “coupon” interest rate) will be “wrapped up” in the calculation of effective interest rate.
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