HOW TO CALCULATE EFFECTIVE INTEREST RATE
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You have to use IRR method,
By trial & Error method, you have to discount Inflows with Outflow,
The rate at which PV of Inflows is equal to outflow is effective interest rate.
If you are taking about effective interest rate in case of borrowing cost, first you have to calculate the net proceeds from the borrowing such as any commission paid or premium on redemption etc. Then you have to find the rate by dividing the interest amt by the net proceeds we calculated earlier.
IF A COMPANY ISSUE A 9% DEBENTURE FOR RS 10 LAK AND IT IS INCURRED 50000 TRANSACTION COST. AND IT WILL BE REEDEM INTO EQUITY SHARE OF OWN COMPANY BASE OF FAIR VALUE OF SHARES.REDEMPTION PREMIUN rakshitsingh54%.THEN WHAT IS EFFECTIVE INTEREST RATE?