EXAMPLE

Opening Fin Cost Cash paid Closing

Year bal @8% @5% balance
$ $ $ $
20x5 5000 400 -250 5150
20x6 5150 412 -250 5312
20x7 5312 425 -5737 0

PRACTICE QUESTION

Opening Fin Cost Cash paid Closing

Year bal @7% @4% balance
$ $ $ $
1 18966 1328 -800 19494

COMPOUND INSTRUMENT EXAMPLE

Cashflow
@ coupon D.Factor Present
Year rate 6% @9% value
$000s $000s $000s 1/(1+r)^n
1 180 0.917431 165
2 180 0.84168 152
3 3180 0.772183 2456
Liability component at 1 January 2010 2772
Equity component 228
Proceeds from the issue of the convert loan notes 3000

Please note the liabilty component going forward will be measured at armotised cost

Opening Fin Cost Cash paid Closing

Year bal @9% @6% balance
2010 2772 249 -180 2842

COMPOUND INSTRUMENT PRACTICE QUESTION

 Cashflow
@ coupon D.Factor Present
Year rate 4% @9% value
$000s $000s $000s 1/(1+r)^n
1 800 0.917431 734
2 800 0.84168 673
3 20800 0.772183 16061
Liability component at 1 jan 2009 17469
Equity option 2531
Total proceeds 20000

Opening Fin Cost Cash paid Closing

Year bal @9% @4% balance
2009 17469 1572 -800 18241