[rifraz]

It’s clear now. Thanks John

[rifraz]

Hi John,

01. This is regarding part d of the above question.
They have given 1 year inflation rates. To get 6months inflation can I just divided 1year inflation rate by 2 and use in PPT formula?
Example in part,

Mazabia’s – 9.7%/2 = 4.85%
Casasophia – 1.2%/2 = 0.6%

Then use ppt as follows,

1.0485/1.006 * 116 = 6months spot rate.

Examiner has taken 12months inflation rate and done something. I have tried but I couldn’t understand how he has been calculated. Kindly explain this.

02. If a call option = lowest net cost
If a put option = highest net receipt

Give the best hedging exercise price. Therefore in part c 1.36 exercise price gives the best hedging. In exam if we get a this type question, is it okay just to calculate hedging calculation for 1.36 rather than calculating hedging calculation for all exercise prices?

Thanks in Advance!

[rifraz]

Wow. Now its clear. Thanks Sir 🙂

[rifraz]

Hello,

My question is regarding part c of this question. I have property calculated the exchange rates for 5years. And I thought EMV can be calculated by taking sum of present value of 4.2m/exchange rate and then discounted by 11%. But examiner has taken “difference to spot” calculation for 5years and then he has been discounted those cashflow to get the EVM. Could you kindly explain me the logic behind taking “difference to spot” calculation here?

Thanks Sir,
JM

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