Government Transfers - Deloitte
Government Transfers - Deloitte
Government Transfers - Deloitte
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Effective interest method<br />
• The effective interest method discounts the estimated future<br />
cash payments or receipts throughout the life of a financial<br />
instrument.<br />
• Illustrative example: A public sector entity invests in a strip<br />
bond that pays $5,000,000 upon maturity in five years. Its<br />
purchase price is $3,917,500, which provides an effective<br />
yield to maturity of 5 percent. An investor in this type of<br />
security receives the $5,000,000 face value of the bond on<br />
maturity.
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