On 1 April 2009, a deep discount bond (a bond which was issued at a discount to its face value) was issued by DDB AG. It had a face value of 2.5 million covering a five-year term. The lenders were granted a discount of 5%. The coupon rate was 10% on the principal sum of 2.5 million, payable annually in arrears, and the effective interest rate was 13.28%. The principal sum was repayable in cash on 31 March 2014. Issuing costs amounted to 150,000. Required:

1. Compute the finance charge per annum and the carrying value of the loan to be reported in the year ending 31st March, 2010 income statement and statement of financial position respectively.

2. Using what method could you have calculated the effective interest rate if it was not given?