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Forums › Ask ACCA Tutor Forums › Ask the Tutor ACCA AFM Exams › Interest Rate Options – Awan Dec 13
Hi John,
I’m just working through this question on Interest Rate Options. I understand how to do the options and I understand the examiner’s answer. My question is more about technique.
The examiners answer for the option that is not exercised:
Investment return (4.79% x 4/12 x $48m) $766,400
Gain on options Zero
Premium 0.0021 x $2m x 3/12 x 32 ($19,360)
Net Return $747,040
Interest Rate 4.67%
So in effect, they take the annual interest rates, work it out in for part of the year and then annualise it up again.
My answer was a lot more simple (and quicker!!) and just kept the interest rates annualised, as follows:
Interest Paid 4.79%
Premium (0.121%)
Rate 4.67%
If I need to, I can still work out the interest paid by calculating $48m x 0.0467/3 = £747,200, but this particular question didn’t ask for that.
Doing it this way helps me enormously to get a question like this done in the time, but would I get the full marks for it?!
This is the first time I’ve asked you a question, but just wanted to let you know that you’ve been a fantastic help with all the many many questions you’ve answered in the past that I’ve been able to search, so thanks so much for that. You make the chore of a self studier much much easier 🙂
Roz
Provided the examiner did not specifically ask for the $ amounts then you would get the full marks 🙂
(And thank you very much indeed for your comments – I appreciate it a lot 🙂 )