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Excercise Price

Forums › Ask ACCA Tutor Forums › Ask the Tutor ACCA AFM Exams › Excercise Price

Viewing 4 posts - 1 through 4 (of 4 total)
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  • May 23, 2017 at 6:28 am #387540
    monirujjaman
    Member
    • Topics: 8
    • Replies: 11
    • ☆

    Dear Sir,

    Can you please describe me, how i will determine the exercise price in INTEREST RISK MANAGEMENT in option.

    Thanks

    May 23, 2017 at 8:45 am #387561
    John Moffat
    Keymaster
    • Topics: 57
    • Replies: 54659
    • ☆☆☆☆☆

    There is no ‘best’ exercise price. If you are borrowing then you want to set a interest rate cap. You can get lower caps by choosing a higher exercise price, but the premium cost will be greater (and, of course, the premium will be ‘wasted’ if the option does not end up being exercised).
    In the exam, if it is not specified which exercise price to use, then ideally you will show what happens for all of the exercise prices available in the question.

    Have you watched my free lectures on interest rate options?

    May 24, 2017 at 4:18 am #387700
    monirujjaman
    Member
    • Topics: 8
    • Replies: 11
    • ☆

    Thanks Sir, yes, I have seen your lectures and those are really helpful.

    May 24, 2017 at 7:51 am #387732
    John Moffat
    Keymaster
    • Topics: 57
    • Replies: 54659
    • ☆☆☆☆☆

    You are welcome 🙂

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