Forums › Ask ACCA Tutor Forums › Ask the Tutor ACCA AFM Exams › Q: sembilan co (6/12)
- This topic has 3 replies, 2 voices, and was last updated 7 years ago by John Moffat.
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- January 29, 2017 at 2:28 pm #370133
hi sir,
please could you explain these two points from this question.1)in order to calculate the interest receivable from the bank why are we using year 1 spot rates and the yr 2 to yr 4 forward rates? what is the reason behind the mix and match.
2)in part b (i) we are asked to prove whether liability will change or not after swap and the question used Yeild 3% and 5%
i just want to confirm that according to the theory am i correct to assume whether or not whichever combination of interest % i use the value would be similar?for instance say yeild 7% and 17%.thanks alot
January 29, 2017 at 5:17 pm #370163I am sorry, but I am sat in an airport on my way home from a break and I don’t have the question Sembilan with me.
Please ask again tomorrow and I will then try and help you.
January 30, 2017 at 11:46 am #370264hi sir just to remind you of this question . its in the bpp kit q 66
thanks
January 30, 2017 at 6:06 pm #370301It is not a case of mixing and matching.
We need to know what rate of interest they will pay in the first year, in the second year, and so on.
The spot yield rates are the rates p.a. that are fixed for 2 year borrowing, for 3 year borrowing etc..
The forward rates are what we expect the actual interest rate to be in the second year, in the third year etc..
Yes – you could have used different rates (although it would be a bit extreme to use 17%! It is hardly likely that interest rates in this question would change that much!!
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