Loan help needed

Barry

Please can someone help with this problem:
10 year loan at 10% interest for £200,000 is taken out on 1/1/07 and interest is paid half yearly. Costs of issue are £14k. It is repurchased on 2/1/12 at £102 per £100 face value and the client has used straight line of amortisation. I am trying to work out the gain or loss on the repurchase of the loan. Any takers??

Steve Collings

Is this a real-life situation?

Anyhow, to work out the gain/loss, here's what you do:

Reacquisition price [(102/100) x £200k]...............................204,000
Face value........................................................200,000
Unamortised discount [2% x £200k x (6/10)]..........(2,400)
Unamortised issue cost [14,400 x (6/10)]...............(8,400)....189,200
Loss on repurchase..............................................................14,800

Hope that helps.

Regards
Steve