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Hi Mr John,
hope you are doing well.
in your answer regarding question Sembillan, you mention – —-
For the first year we know what the actual spot rate is (2.5%) for the later years we do not know what the actual spot rates will be, so we are using the forward rates. —
if in the question it says —bond interest, payable annually, is based on the spot yield
curve plus 60 basis points.—- why for first year also we are not adding 60 basis points to 2.5%.
thank you for support.
It is because they have swapped the interest payments.
The receipts are not affected by the interest they have to pay, but in part (b) of the question, we do include the extra 60 basis points,