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December 2014 question 2

Forums › Ask ACCA Tutor Forums › Ask the Tutor ACCA AFM Exams › December 2014 question 2

  • This topic has 1 reply, 2 voices, and was last updated 7 years ago by John Moffat.
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  • September 6, 2018 at 1:38 am #471739
    sayma
    Participant
    • Topics: 17
    • Replies: 4
    • ☆

    Hello Sir
    In question 2 of the above stated exam paper, in part A, when calculating the underlying cost of borrowing, in the mark scheme, the floating rate has been used. The question dies not specify which rate to use so i went with the fixed rate. Is that wrong? Thank you

    September 6, 2018 at 6:17 am #471755
    John Moffat
    Keymaster
    • Topics: 57
    • Replies: 54755
    • ☆☆☆☆☆

    It would be wrong (although you would not lose all of the marks).

    If they already know that they can borrow fixed at 5.5% on 1 February, then they would not be at risk and would not need to hedge (the risk we hedge against is the risk on interest rates changing between ‘now’ at the date the borrowing starts).

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  • The topic ‘December 2014 question 2’ is closed to new replies.

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