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Hi John,
In (b)(i) they have discounted the values using spot yield rates for each. But shouldn’t they have used spot yield for only the first year, and the forward rates for the remaining years?Please solve this doubt. Thanks.
No, what the examiner has done in the answer is correct – discounting the interest at the relevant annual rate for the number of years.
(The question was very much based on the technical article that had appeared:
https://www.accaglobal.com/gb/en/student/exam-support-resources/professional-exams-study-resources/p4/technical-articles/bond-valuation-yields.html )So this logic of first-year spot rates and then for the following years forward rates only applies to FRA?
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