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Arnbrook plc (June 2006 amended)

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  • August 28, 2018 at 7:11 pm #469879
    niki27
    Member
    • Topics: 82
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    • ☆☆

    Dear sir,
    I have a doubt from the June 2006 paper qn Arnbrook

    The qn asks if the proposed swap is beneficial to all parties or not.
    Now, I have watched your lecture on swaps and worked every step to a T. I worked out that the AA co has to pay the BBB co an extra 0.8% so as to achieve the swap payment.

    Secondly, that is not mentioned anywhere in the answer (in the Kaplan Kit). Is it not significant enough for the co to not consider the swap or not?

    Sir please can you tell me if I have worked it out correct?

    Appreciate if you can help me out

    Thanks.

    August 28, 2018 at 7:53 pm #469895
    John Moffat
    Keymaster
    • Topics: 56
    • Replies: 51950
    • ☆☆☆☆☆

    All the question is requiring is to calculate whether or not the swap is beneficial. So the way they actually go about the swap doesn’t matter 🙂

    August 28, 2018 at 9:28 pm #469918
    niki27
    Member
    • Topics: 82
    • Replies: 15
    • ☆☆

    But isn’t that a no – no to the swap since they have to pay more?

    Am I complicating the answer further? ?

    Thanks

    August 29, 2018 at 8:41 am #469955
    John Moffat
    Keymaster
    • Topics: 56
    • Replies: 51950
    • ☆☆☆☆☆

    But there is a saving to be made of 0.50% to be made overall. Whether it ends up being beneficial to both parties depends on how the saving is shared, as explained in the examiners answer.

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