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When We want to calculate the Basis per month, what method is expected to be performed by us?
1) ( Three?month expiry Future – Six?month expiry Future ) / 3
2) (Spot Rate – Current Future Rate) / Months left to expiry of futureI’ve been using the 2nd method, as this was mentioned in the Kaplan Study Text.
When I started attempting the questions, most of the Lock in Rate questions are done using the first one. Could you please guide me in this matter?Thank you!
Also , In WASHI CO (SEP 18)
Why isn’t the 1st year’s Component Revenue inflated? It just doesnt make sense to me.
As, in other questions that I’ve done before, the first year’s revenues were always inflated by the inflation rate.
I saw you answering it at https://opentuition.com/topic/washi-co/ but still wasn’t able to understand it!!??For your first question, it depends on the information given in the question. However I do explain it in detail in my free lectures.
For your second question. note 2 of the question (under ‘further information’ specifically writes that the revenues given will inflate in years 2 to 4 (so it is only years 2 to 4 that inflate).
Alright, I’ll consider watching the lecture again.
But the first year’s sale is supposed to happen after a year right? Then logically (like how we do it every other question) we should’ve inflated the first year too right?
And what would have been the treatment if the ‘further information’ not given?No. The first years sales occur in the first year. We treat the cash receipt as though it occurs as the end of the first year (i.e. time 1) as always unless specifically told differently.
The question again specifically says that the estimated pre-inflation revenues are as given but that they only increase in years 2 to 4. Therefore they do not inflate in the first year.
They would have to give further information with reference to the inflation. If they said that all the estimates were pre-inflation and were inflating at the Japanese inflation rate then you would inflate all of the revenues.
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