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Help with a financial maths question

Guffy · 2014-12-03 21:17:49

I'm working away on exam papers here and need a bit of help with one of the questions. (I don't have the solutions) Find the present value of a debt of €850,000 taken out over 7 years (with no immediate repayments) where the borrowing rate is 9.5% and the worth of the money (discount rate) is 7.5%. What is the real cost of…

03-12-2014 9:17pm

#1

Guffy

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I'm working away on exam papers here and need a bit of help with one of the questions. (I don't have the solutions)

Find the present value of a debt of €850,000 taken out over 7 years (with no immediate repayments) where the borrowing rate is 9.5% and the worth of the money (discount rate) is 7.5%. What is the real cost of the debt?

Now I have actually attempted it but know it is completely wrong but here it is so ye don't think I'm looking for a free ride.

850,000(1 - 9.5%/7.5%)^7 = 737906.70..... That can't be the cost of the debt, obviously.

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