thiviya
Mar 16, 2007, 07:17 PM
Witchu obtained a loan of A$100 million on 1 October 2006. The loan has a variable interest rate (which was 6.35% per annum at inception), with semi-annual interest rate reset and interest payments. The loan has a term of seven years. The carrying value recognised by Witchu on 1 October 2006 was A$98.6 million in accordance with AASB 139.
Witchu has cash flow hedged the loan by executing an interest rate swap. The swap has a notional value of A$50 million and a term of two years from 1 October 2007 to 30 September 2009. Witchu’s board of directors expects that interest rates will peak around the third quarter of 2009 and wishes to participate in any potential interest rate decreases if they occur.
(a) Calculate the effective interest rate of the borrowing. Show all your workings.
(b) Determine the amortised cost of the financial liability on 1 October 2009.
Witchu has cash flow hedged the loan by executing an interest rate swap. The swap has a notional value of A$50 million and a term of two years from 1 October 2007 to 30 September 2009. Witchu’s board of directors expects that interest rates will peak around the third quarter of 2009 and wishes to participate in any potential interest rate decreases if they occur.
(a) Calculate the effective interest rate of the borrowing. Show all your workings.
(b) Determine the amortised cost of the financial liability on 1 October 2009.