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fix and floating rate debt

Forums › Ask ACCA Tutor Forums › Ask the Tutor ACCA AFM Exams › fix and floating rate debt

  • This topic has 5 replies, 2 voices, and was last updated 9 years ago by John Moffat.
Viewing 6 posts - 1 through 6 (of 6 total)
  • Author
    Posts
  • June 10, 2016 at 7:50 am #321846
    Mahnoor
    Member
    • Topics: 7
    • Replies: 8
    • ☆

    while calculating the effective interest cost of a collar, why dont we consider the rate we will claim back?
    i.e if we have made a cap at 8% and libor is 9.5% why do we took 9.5 in our effective rate calculation ?

    2) we do we compare with LIBOR to select whether to exercise or not??
    and for someone who has bought a floor from us we compare his exercise price with futures price

    June 10, 2016 at 7:51 am #321847
    Mahnoor
    Member
    • Topics: 7
    • Replies: 8
    • ☆

    3) what factor are required to decide the MIX of these two in a debt portfolio?

    June 10, 2016 at 8:07 am #321852
    John Moffat
    Keymaster
    • Topics: 57
    • Replies: 54699
    • ☆☆☆☆☆

    We do consider the amount we claim back if the option is exercised.

    Have you read my note on collars (and watched the lectures on options)?

    As regard the mix of the two, if you mean the mix of put and call options (which are what are being used to create the collar) then you should consider all possible collars and discuss – there is no such thing as a ‘best’ collar.

    June 10, 2016 at 8:33 am #321866
    Mahnoor
    Member
    • Topics: 7
    • Replies: 8
    • ☆

    am asking the MIX of fix and floating rate debt

    June 10, 2016 at 8:35 am #321867
    Mahnoor
    Member
    • Topics: 7
    • Replies: 8
    • ☆

    collars:
    in a question he hs calculated by adding 9.5 (libor) in (+2% as the company can borrow at libor plus 2%)
    in calculation of effective int rate

    June 10, 2016 at 9:42 am #321884
    John Moffat
    Keymaster
    • Topics: 57
    • Replies: 54699
    • ☆☆☆☆☆

    You will have to say which question you are asking about.

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