Good day Sir. In your solution to example 2, you stated that 6 months loan will be 4-10 months, however this seems like a 7 months loan. Should 6 months loan not be stated as 4 – 9 months? i.e. (4,5,6,7,8,9).

No, it is 4-10. It starts in 4 months from now and finishes in 10 months from now. (What you have written would assume that it starts on the first day of the 4th month and finished on the last day of the 9th month, but if the first day of the 4th month is 4 months from today, then the last day of the 9th month is 10 months from today!).

In your solution to example 2, you stated that 6 months loan will be 4-10 months, however this seems like a 7 months loan. Should 6 months loan not be stated as 4 – 9 months? i.e. (4,5,6,7,8,9).

On FRA, so it means that if the interest rate drops at the start of the loan, the company loses and still pays the FRA as in this example 1, 10% instead of 8%?

I assume you are referring to the IRG example (because there is no premium payable for FRA’s).

If you check the lecture again, you will see that I have included the premium when calculating the effective rate (because the premium is payable whether or not the IRG is used).

Assuming today is 1st of December, 2017 and Company x agree to borrow in order to offer financial support to a gardening event. the event will take place in seven months time but an expenditure of 拢23m for temporary facilities will be necessary in five months time.

Q: what would you say is the duration of the loan in terms of F.R.A is?

YkOdus says

Good day Sir. In your solution to example 2, you stated that 6 months loan will be 4-10 months, however this seems like a 7 months loan. Should 6 months loan not be stated as 4 – 9 months? i.e. (4,5,6,7,8,9).

John Moffat says

No, it is 4-10. It starts in 4 months from now and finishes in 10 months from now. (What you have written would assume that it starts on the first day of the 4th month and finished on the last day of the 9th month, but if the first day of the 4th month is 4 months from today, then the last day of the 9th month is 10 months from today!).

YkOdus says

In your solution to example 2, you stated that 6 months loan will be 4-10 months, however this seems like a 7 months loan. Should 6 months loan not be stated as 4 – 9 months? i.e. (4,5,6,7,8,9).

arjun585 says

Good day Sir,

In exam ,we have to calculate effective interest rate or no need to calculate.

Waiting for your reply.

Thanks

John Moffat says

It depends what the question asks for 馃檪

muibatogunmola says

Good day Mr. John,

On FRA, so it means that if the interest rate drops at the start of the loan, the company loses and still pays the FRA as in this example 1, 10% instead of 8%?

Thank you

toobeelee says

Hi can i ask, is there a reason when calculating effective rate for the loan when actual interest was 8% we did not included the premium

John Moffat says

I assume you are referring to the IRG example (because there is no premium payable for FRA’s).

If you check the lecture again, you will see that I have included the premium when calculating the effective rate (because the premium is payable whether or not the IRG is used).

toobeelee says

Thank you, noted

John Moffat says

You are welcome 馃檪

fizzle says

Assuming today is 1st of December, 2017

and Company x agree to borrow in order to offer financial support to a gardening event. the event will take place in seven months time but an expenditure of 拢23m for temporary facilities will be necessary in five months time.

Q: what would you say is the duration of the loan in terms of F.R.A is?

thanks

John Moffat says

Please ask questions like this in the Ask the Tutor Forum, and not as a comment on a lecture.

On what you have typed, it would be 5-7 FRA. (Although this is hardly an AFM problem, more of a basic FM problem)