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Smack co. issues a convertible loan that pays interest of 2% per annum in arrears. The market rate is 8%, being the interest rate for
Smack co. issues a convertible loan that pays interest of 2% per annum in arrears. The market rate is 8%, being the interest rate for an equivalent debt without conversion option. The loan of $ 5 million is repayable in full after three years or convertible to equity. Required: Split the loan between debt and equity at inception and calculate the finance charge for each year until conversion/redemption
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