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Hi,
I am currently working on F2 and there are questions where given discount rate or interest rate but not sure which table to refer to .Please help to shed some light on when to use the 2 tables provided by CIMA accordingly.
Thanks.Hi,
The discount rate and interest rate are the same thing when it comes to the tables. Could you shed some light on where you are specifically struggling with this?
Thanks
For eg question say 12% redeemable bonds with 5 years remaining in the redemption at par value. The bonds are currently trading in the market at $100 ex-interest. The rate of corporation tax is 30%.
To get discount factor at the 5th year is 4.329,you will use the cumulative present value table.But at the 5th year,discount factor at 0.784,you use present value table.So would like to know in exam how do I know which table should I be using?
Since its 5 years,why I do not do it year by year calculation but do 1-5 year directly when I calculate discount factor?
Thanks.
Hi,
You would use the cumulative present value for an annuity, which is a constant stream of annual cash flows, which in this instance is the annual coupon payment and multiplied by the 4.329.
The discount factor table is used for the single period cash flow, so in this instance the cash flow on redemption which is multiplied by the 0.784.
Hope that clears it up for you.
Thanks
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