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Q: Lingum Co. Dec – 2012

Forums › Ask ACCA Tutor Forums › Ask the Tutor ACCA AFM Exams › Q: Lingum Co. Dec – 2012

  • This topic has 4 replies, 3 voices, and was last updated 10 years ago by John Moffat.
Viewing 5 posts - 1 through 5 (of 5 total)
  • Author
    Posts
  • May 30, 2015 at 8:31 pm #250755
    uuuu
    Member
    • Topics: 17
    • Replies: 14
    • ☆

    Sir,

    In the above subject question;

    “It is expecting full payment for the machinery in four months.”

    Sir, then why calculating the FWD rate we divide by 3.

    “Zuhait base rate of 8·5% plus 25 basis points and the French base rate of 2·2% less 30 basis points.”

    Sir, then why calculating the FWD rate basis were taken as 0.0025 instead of taken as 0.25(i.e. 25/100).

    The published answer is mentioned below which I can’t understand. Kindly explain the calculation in easy simple steps.

    Using forward rate
    Forward rate = 142 x (1 + (0·085 + 0·0025)/3)/(1 + (0·022 – 0·0030)/3) = 145·23
    Income in Euro fixed at ZP145·23 = ZP140,000,000/145·23 = €963,988

    Sir, Similar is the case with Option premium basis points

    “The premium cost is payable in full at the commencement of the option contract. Lignum Co can borrow money at the base rate plus 150 basis points and invest money at the base rate minus 100 basis points in France.”

    Sir, please Kindly clarify.

    May 31, 2015 at 10:30 am #250870
    John Moffat
    Keymaster
    • Topics: 57
    • Replies: 54699
    • ☆☆☆☆☆

    I can’t go through the whole calculation for you – sorry – but I am spending six hours a day answering questions! I just do not have the time.

    25 basis points is 0.25% which is the same as 0.0025

    To get forward rates you use the interest rate parity formula. If it is for 4 months then you use the 4 months interest, which is 4/12 time the annual interest (the same as 1/3 times the annual interest)

    May 31, 2015 at 6:52 pm #251113
    uuuu
    Member
    • Topics: 17
    • Replies: 14
    • ☆

    Sir,

    Thanks a lot for clarifying

    June 1, 2015 at 4:47 am #251168
    khinhninswe
    Member
    • Topics: 1
    • Replies: 3
    • ☆

    Sir,

    Can you explain calculation of dcf
    1÷.07692(1-1/1.07692^12) for 12 years av calculation?

    June 1, 2015 at 8:30 am #251220
    John Moffat
    Keymaster
    • Topics: 57
    • Replies: 54699
    • ☆☆☆☆☆

    It is the annuity discount factor for 12 years at 7.692% (using the formula at the top of the annuity discount factors sheet).

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