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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 = €963,988Sir, 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.
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)
Sir,
Can you explain calculation of dcf
1÷.07692(1-1/1.07692^12) for 12 years av calculation?
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