[kenneth09]

The key words in my discussion includes:
Pros:
unlike sensitivity analysis, it considers inter dependency between variables
It takes the all the variables and probability distribution into account and they can change at same time.
It assist in making investment decisions by producing a range of NPVs.

Cons:
It may be difficult to assign the probability
It is more complex and need computer assistance to perform.

How many marks are expected for my discussion.
Thank you.

[kenneth09]

thank you! John

according to BPP study text book:

“An interest rate option grants the buyer of it the right, but not the obligation, to deal at an agreed interest rate (strike rate) at a future maturity date (the expiry date for the option).
On the date of expiry of the option, the buyer must decide whether or not to exercise the right.”

it seems that the “interest rate option” in the context is equivalent to the interest rate guarantee as the IRG was not mentioned in the BPP study text.

now I’m confused with the term”interest rate option”.is it an alternative expression to IGR?

or it should be treated as the options for future contract?

and if it should be exactly distinguished in the exam?

[kenneth09]

I got it! thanks for your help!
I do feel that the questions in kaplan kit sometimes appear a little tricky and the explanations are always less detailed, lol

[kenneth09]

thank you.
is the right issue price important for existing shareholders?
because of the examiner’s answer for Tinep Co 12/14:’must set a price which is low enough to secure the acceptance of shareholders.’ I got a little confused with this.
if, theoretically, the shareholders wealth will not be affected, the share price may be irrelevant to make sure the existing shareholders to accept(take up the shares), isn’t it?

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