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I want to know how 20.07 in worse case rate and 25.75 in best case rate has been calculated
It is from galeplus plc from question no B ii ,in answer it has calculated as followsDiscounted cash flow ( £ millions )
Worse case rate (23.42) 0.27 0.16 20.07
Estimated NPV (£2.92 million)Best Case rates (23.42) 0.35 0.27 25.75
Estimated NPV £2.95Estimated get 20.07 and 25.75
I think that it should have been calculated using exchange rate of 85.4,but as I did by 85.4 I did not get 20.07 and 25.75It is only the principal (of 2000M) that is to be converted at the current spot rate.
Everything else is converted at the forecast exchange rates in 1, 2 and 3 years time.In b (ii), in year 3 why 4040 millions rubbits is being split and 2000 millions rubbits is converted by the spot rate of 85.4 instead of 129?
The question says that both swaps of principal (immediately and in three years time) are at today’s spot rate.
Hello John,
I have done the following for year 3:
2000 (principal) @ spot 85.40 = 23.42
ADD
658.32 (remainder) @ spot year 3 129.88 = 5.07
The above equals 28.48 while the answer as per exam kit equals 25.75.
Kindly clarify on the above please.
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