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Hi John,
As per the BPP answer, there are only interest rates calculated for Q2 December 2013.
There are no amounts at all!Obviously, this is time efficient, though should we take such a risk following this approach.
It’s not clear whether such answer will be well awarded with marks and it’s easier to make a mistake in calculations.
By the way, will be the BPP approach awarded by all the marks?Thus, the examiner’s answer is detailed and includes the amounts involved.
My question is what should I follow? BPP or ACCA.
Thus, it’s more time-consuming to calculate both interests and monetary amounts, which examiner does. However, given the risk of error and possibility of low marks awarded, should I learn how to use the BPP approach (i.e. to save time at exam which is also important).
Thank you in advance.
I do not have the BPP answer – only the examiners answer.
The BPP answer will have been approved by the examiner and so there is no risk (and from what you have written it seems that they take the same approach as you will have seen that I illustrate in my lectures).
Though in your lections, you use approach which looks like the examiner’s: the CFs are calculated and afterwards the effective rates, whereas calculations based on interest rates are rather illustrates shown at the end of the lectures for better understanding (at least, I understood them like this).
As per the BPP answer for Q2 2013, just after the caclulation of number of contracts, unexpired basis etc., follwos the table like as follows (the table is not completely the same to avoid copyright issues):
LIBOR-0,9 LIBOR+0,9
% %
LIBOR 3,19 4,99
Interest with spread 2,99 4,79
Closing future price 3,65 5,45
Futures (loss)/gain -1,59 0,21
Effective annual interest rate 4,58 4,58+ Alongside with similiar approach for options
There are no cash figures at all!
Looks tempting, though I’m still not confident whether this is a good approach.
Please clarify whether one should follow such an approach.
Just to remind that the question is “Recommend a hedging strategy”Thank you in advance.
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