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Hi John,
for Bi, I’m struggling to understand the worst case and best case scenarios for Year 3. Could you please explain the calculation for how they get to 20.07 and 25.75?
Thanks,
I do not have the Kaplan book (only the BPP Revision Kit). However I do have the actual exam question, and I guess that Kaplan’s answer is the same as examiners answer 🙂
For the time 3 inflow of 4,040, the principal of 2,000 is converted at the current spot rate of 85.40 (as per the question) and the remaining 2,040 is converted at the spot rate in 3 years time.
So, using worst case rates, the PV is:((2,000/85.4) + (2,040/288.23)) x 0.658 = 20.07
Using best case rates:
((2,000/85.4) + (2,040/129.88)) x 0.658 = 25.75
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