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In SD21, question on Zhichi Co
To calculate Subsidize loan benefit, the examiner’s answer is : 80*(4.8%-1.8%)
I understand that since interest rate of subsidize loan is 180 points lower than risk free rate 4.8%, Subsidize loan benefit should be: 80*1.8%
Please help me explain why.
Thank you.They are actually paying interest of 4.8 – 1.8 = 3%.
The normal cost of borrowing for the company is 6% and therefore the benefit of the subsidised loan in 6 – 3 = 3%.
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