Hi,

I have been taught that calculating the true funding cost is more accurate using method 1 than method 2 (shown below):

[Vars: Fa=percentage funding cost, P=amount of money raised, T=true funding cost]

1. T = P/(1-Fa)

2. T = P + P*Fa

Why is this so? Why do they not equal each other?

Your help is much appreciated.