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BURYECS CO (MAR/JUN 17)

Forums › Ask ACCA Tutor Forums › Ask the Tutor ACCA FM Exams › BURYECS CO (MAR/JUN 17)

  • This topic has 1 reply, 2 voices, and was last updated 8 months ago by John Moffat.
Viewing 2 posts - 1 through 2 (of 2 total)
  • Author
    Posts
  • May 29, 2022 at 2:52 pm #656787
    Frooti
    Participant
    • Topics: 80
    • Replies: 75
    • ☆☆

    B c
    Fixed rate 4% 5.80% 1.80%
    Floating rate Bank rate +0.6% Bank rate +0.4% 0.002

    Savings 1.2000% 0.8000% 2.00%
    Bank fees -0.3000% -0.2000% 0.50%

    Net savings 0.9000% 0.6000%

    B C
    Rate before swap (Bank rate +0.6%) -5.80%
    Net savings 1.20% 0.80%

    Net result 0.90% 0.60%

    Post Swap

    b c
    Borrows at -4% (Bank rate +0.4%)
    c pays (Bank rate) Bank rate
    Bank fees -0.3000% -0.2000%
    b pays

    Net result 0.90% 0.60%

    sir pls help with calculation part of how much will b pay as im not getting it from exam kit.

    May 29, 2022 at 3:58 pm #656804
    John Moffat
    Keymaster
    • Topics: 56
    • Replies: 51585
    • ☆☆☆☆☆

    It is always the missing figure in order to make things ‘work’.

    If B borrowed floating themselves (without a swap) they would be paying bank rate + 0.6%.
    There is a gain to be made from swapping of 1.2% (before bank fees).
    Therefore they must end up paying a net bank rate + 0.6% – 1.2% = bank rate – 0.6% (before bank fees).

    With the swap they will borrow fixed and pay 4%
    They will then pay bank rate to C, so they are now paying 4% + bank rate.

    To end up paying the amount in the second paragraph, then will have to receive the difference from C, and the difference is 4% + bank rate – (bank rate – 0.6%) = 4.6%.

    (If you do similar working for C, then in the same way you will find that they will have to pay 4.6% to B so as to end up paying the correct net amount (before bank fees).)

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