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The question says that the company would receive a variable amount based on the current yield curve rates. Then why are the receivable amounts calculated on the Forward Rates?
I can understand the wording being a little confusing, but when it says that the variable rate received will be based on the current yield rate it does not mean ‘today’s’ yield rate but the rate current on the date of the receipt (and all we can use to estimate what the rates will be is to use the forward rate).
This question was very much based on one of the technical articles on the ACCA website:
https://www.accaglobal.com/gb/en/student/exam-support-resources/professional-exams-study-resources/p4/technical-articles/interest-rate-swap-valuation.htmlOkay sir, thank you. Now it makes much more sense.
I went through the article before attempting the question, but wasn’t able to understand fully.
Now its clear 🙂
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