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Forums › Ask ACCA Tutor Forums › Ask the Tutor ACCA AFM Exams › Interest rate RM
Dear Tutor,
in the latest article on how to answer interest rate RM question the autor states in the Discussion part that: “If Wardegul Co feels there is a possibility that interest rates will be higher than 5.41%, the point at which the 94.25 option would not be exercised, it may choose this option rather than the future.”
Could you please help how 5.41% is calculated.
Thank you.
It is 100 – 94.25 – 0.34 (the unexpired basis) = 5.41%
If the interest rate were to be more than 5.41% then the futures price would be less than 94.25 and they would not exercise.
It may help you to watch my free lectures on interest rate risk management.
Thank you very much.
You are welcome 🙂