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Lignum Co – Dec 12 Q2

Forums › Ask ACCA Tutor Forums › Ask the Tutor ACCA AFM Exams › Lignum Co – Dec 12 Q2

  • This topic has 3 replies, 2 voices, and was last updated 8 years ago by John Moffat.
Viewing 4 posts - 1 through 4 (of 4 total)
  • Author
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  • August 14, 2016 at 12:33 pm #333094
    mathonestler
    Member
    • Topics: 4
    • Replies: 13
    • ☆

    Good afternoon John,

    I was wondering if you could help with calculation of the forward rate for case one in Q2/Dec 2012 Lignum Co.

    The rate is determined as as ZP base rate of 8.5% plus 25 basis point and EUR base rate 2.2% less 30 basis points. Spot is ZP/EUR 142.
    Particularly, I am not sure why both base rates are divided by 3 (e.g. 1+(0.085+0.0025)/3), which is on the answer.
    In the answer is it is calculated as 142x(1+(0.085+0.0025)/3)/(1+(0.022-0.0030)/3)…this confuses me.

    Thank you.

    August 14, 2016 at 2:45 pm #333119
    John Moffat
    Keymaster
    • Topics: 57
    • Replies: 54704
    • ☆☆☆☆☆

    They are using the interest rate parity formula, and dividing by 3 because the interest rates given are yearly rates and they are getting a 4 months forward rate. So it is 4 months interest (or 4/12 of the yearly interest rates).

    August 14, 2016 at 3:38 pm #333133
    mathonestler
    Member
    • Topics: 4
    • Replies: 13
    • ☆

    thank you

    August 15, 2016 at 6:37 am #333198
    John Moffat
    Keymaster
    • Topics: 57
    • Replies: 54704
    • ☆☆☆☆☆

    You are welcome 🙂

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