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LAMMER PLC (JUN 06 ADAPTED)

Forums › Ask ACCA Tutor Forums › Ask the Tutor ACCA AFM Exams › LAMMER PLC (JUN 06 ADAPTED)

  • This topic has 5 replies, 3 voices, and was last updated 8 months ago by John Moffat.
Viewing 6 posts - 1 through 6 (of 6 total)
  • Author
    Posts
  • April 8, 2022 at 6:28 am #652856
    Frooti
    Participant
    • Topics: 80
    • Replies: 75
    • ☆☆

    No five?month forward rate is given. The rate may be interpolated from the threemonth
    and one?year rates for buying dollars.
    The estimated five?month forward rate is:
    1.9029 *7/9
    +1.8901 *2/9
    =1.9066

    Pls explain this calculation part.

    Also can’t we find forward rate using borrowing rates given in question and then converting them for 5 months ?

    April 8, 2022 at 6:30 am #652857
    Frooti
    Participant
    • Topics: 80
    • Replies: 75
    • ☆☆

    The expected basis in five months’ time is 1.7*1/7 *2 =0.486 cents

    Why they have multiplied by 2 ?

    April 8, 2022 at 6:34 am #652858
    Frooti
    Participant
    • Topics: 80
    • Replies: 75
    • ☆☆

    My answer for money market is coming different than that of exam kit . Can you pls explain where I have gone wrong.

    Invest in foreign currency=150000/1.017=$ 147493

    In pounds= 147493/1.9156= 76 996 pounds

    borrow in home country=76996* 1.046= 80537 pounds

    April 8, 2022 at 10:24 am #652878
    John Moffat
    Keymaster
    • Topics: 57
    • Replies: 51532
    • ☆☆☆☆☆

    I am having a problem here. I have the BPP Revision Kit and also all the past exams. However the current edition of the BPP Kit does not contain a question called Lammer, and there was no question called Lammer in the June 2006 exam either.

    I do know that there used to be a question called Lammer in earlier editions of the Kit (but I don’t keep old editions) because I have answered questions about it on here in years gone by.

    If you use the ‘search’ button on here and type in ‘Lammer’ then you will find previous questions that I have answered and hopefully they will explain your problems for you.

    May 8, 2022 at 10:03 pm #655212
    suzcooney
    Participant
    • Topics: 2
    • Replies: 8
    • ☆

    Hi there, I found this question in the Kaplan exam kit Lammer Plc (Jun 06)Questions and I cannot understand it either were you able to get a response

    How did they come up with a 5 month forward rate from a
    3 month forward rate 1.9066-1.9120
    1 year forward rate 1.8901-1.8945

    The estimated fivemonth forward rate is:
    1.9029 *7/9
    +1.8901 *2/9
    =1.9066

    Pls explain this calculation part.

    May 9, 2022 at 6:15 am #655220
    John Moffat
    Keymaster
    • Topics: 57
    • Replies: 51532
    • ☆☆☆☆☆

    As I wrote in my previous reply I only have the BPP Revision Kit and the question Lammer does not appear in the current edition of the BPP Kit (it used to be in their kit several years ago, but since it is such an old question (before the current examiner took over the exam) they have now removed it).

    However the answer you quote has averaged between the two given forward rates (although you have mistyped in your post and the calculation is (1.9066 x 7/9) + (1.8901 x 2/9) = 1.9029, and this is the 5 month forward rate).

    A more obvious way of showing it is as follows:
    The difference between the 3 month and 12 months forward rates is 1.9066 – 1.8901 = 0.0165, and this fall occurs over 12 – 3 = 9 months.

    We need the 5 months forward rate which is the 3 month forward rate adjusted for an extra 2 months.

    It is therefore 1.9066 – (2/9 x 0.0165) = 1.9029

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