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Hi, John
The marking guide states, impact on interest rate for which marks are awarded. which i assume is the effective rate of interest that we get in the end?
If so, as you know effective rate can be computed via gain/loss in basis points compared with original borrowing or deposit capacity ,without needing all that excess calculation.
so as long the effective rate is computed, marks would be gained ?
Additionally when 2 strike prices are given for Options, we have to perform our calculation on both of them, or is the examiner suggesting us to select the one which would be the correct one as in giving better results?
If you are still referring to Awan, then for the full 3 marks you would be expected to show the calculations for the increase and decrease separately. If all you did was show the effective rate (which would be the same for any increases or decreases) then you would still get 1 or 2 marks, but not all 3.
With options, you cannot say one is better than the other (it depends on what happens to interest rates and whether or not the option ends up being exercised – one may fix a higher minimum interest rate, but will also have the highest premium that is still payable if it isn’t exercised).
Ideally you should show calculations for all the available exercise prices. If you are running short of time then just showing the calculations for one of them will get you more than half the marks.
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