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Requirement – c
1)
In requirement c it was asked to estimate pv of saving from swap.
When calculating this they didn’t include bank fee charge of 90000 per annum
I have included bank fee charge in my calculation. So i want to know whether my way of calculation is wrong or not. I got saving 30000 in half year.
2)
another thing, 1st half year saving was discounted at 5.7% and after that onwards 6.2%. i have understood the calculations of this two rate but could not find the logic behind discounting 1st half year at 5.7% and after that onwards 6.2%.
1. No – you wouldn’t be wrong (except that I don’t know where you got 90,000 from – the question says that the fee is 120,000 (but gets tax relief). The examiners answer calculates the PV of the savings, but then states that the saving is more than the fee and therefore the swap is beneficial.
2. The question says that the elections are due in 6 months time, and it is only immediately after the election that LIBOR will increase.
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