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Arnbrook plc (jun 06 adated)

Forums › Ask ACCA Tutor Forums › Ask the Tutor ACCA AFM Exams › Arnbrook plc (jun 06 adated)

  • This topic has 1 reply, 2 voices, and was last updated 5 years ago by John Moffat.
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  • June 1, 2020 at 8:03 pm #572548
    Sneha00
    Member
    • Topics: 46
    • Replies: 20
    • ☆☆

    Sir please explain the c part of que, how they have calculated the PV of Savings and at how they have calculated discount rates?

    June 2, 2020 at 7:27 am #572567
    John Moffat
    Keymaster
    • Topics: 57
    • Replies: 54700
    • ☆☆☆☆☆

    As explained in part (b) the company will save 0.5% due to the swap and so they will end up effectively paying interest of 5.7% initially increasing to 6.2% after 6 months.

    The discount factors are calculated using the formula as normal. So, for example, the discount factor for the saving in 18 months time (which is 1.5 years) is
    1 / ((1.062)^1.5)

    This is the only time ever that an exam question has required 6-monthly discounting and I will be surprised if it is ever required again – the examiner has changed twice since this question was set.

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