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With regard to the Question 1 in past exam paper June 2012, the provided answer for it (Appendix iii), there is a risk free rate (estimate), is there any method to estimate it? or the number is a pure made-up.
Hi Laegjei,
Normally the risk free rate is the government 90-day bonds rate. In the question given, the company paying the interest of 8% , which is 380 basis point (3.8%)above the government base rate. That means the government base should be 8%-3.8%=4.2%. 4.2% would be the risk free rate.
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