• Skip to primary navigation
  • Skip to main content
  • Skip to primary sidebar
Free ACCA & CIMA online courses from OpenTuition

Free ACCA & CIMA online courses from OpenTuition

Free Notes, Lectures, Tests and Forums for ACCA and CIMA exams

  • ACCA
  • CIMA
  • FIA
  • OBU
  • Books
  • Forums
  • Search
  • Register
  • Login
  • ACCA Forums
  • Ask ACCA Tutor
  • CIMA Forums
  • Ask CIMA Tutor
  • FIA
  • OBU
  • Buy/Sell Books
  • All Forums
  • Latest Topics

Congratulations to Jamil from Pakistan and Jeeva from Malaysia - Global Prize winners!
see all ACCA December 2022 Genius Hunt Competition winners >>

Specially for OpenTuition students: 20% off BPP Books for ACCA & CIMA exams – Get your BPP Discount Code >>

sembilan co jun12

Forums › Ask ACCA Tutor Forums › Ask the Tutor ACCA AFM Exams › sembilan co jun12

  • This topic has 1 reply, 2 voices, and was last updated 11 months ago by John Moffat.
Viewing 2 posts - 1 through 2 (of 2 total)
  • Author
    Posts
  • February 20, 2022 at 3:54 am #648924
    Frooti
    Participant
    • Topics: 80
    • Replies: 75
    • ☆☆

    Sembilan Co, a listed company, recently issued debt finance to acquire assets in order to
    increase its activity levels. This debt finance is in the form of a floating rate bond, with a
    face value of $320 million, redeemable in four years. The bond interest, payable annually, is
    based on the spot yield curve plus 60 basis points. The next annual payment is due at the
    end of year one.
    Sembilan Co is concerned that the expected rise in interest rates over the coming few years
    would make it increasingly difficult to pay the interest due. It is therefore proposing to
    either swap the floating rate interest payment to a fixed rate payment, or to raise new
    equity capital and use that to pay off the floating rate bond. The new equity capital would
    either be issued as rights to the existing shareholders or as shares to new shareholders.
    Ratus Bank has offered Sembilan Co an interest rate swap, whereby Sembilan Co would pay
    Ratus Bank interest based on an equivalent fixed annual rate of 3.76¼% in exchange for
    receiving a variable amount based on the current yield curve rate. Payments and receipts
    will be made at the end of each year, for the next four years. Ratus Bank will charge an
    annual fee of 20 basis points if the swap is agreed.
    The current annual spot yield curve rates are as follows:
    Year One Two Three Four
    Rate 2.5% 3.1% 3.5% 3.8%
    The current annual forward rates for years two, three and four are as follows:
    Year Two Three Four
    Rate 3.7% 4.3% 4.7%
    Required:
    (a) Explain
    why the fixed annual rate of interest of 3.76¼% is less than the four?year yield
    curve rate of 3.8%.

    Please tell this explanation as I didn’t get it from kaplan exam kit.

    February 20, 2022 at 9:50 am #648962
    John Moffat
    Keymaster
    • Topics: 57
    • Replies: 51543
    • ☆☆☆☆☆

    With the variable rate, some years that interest is lower and some years it is higher.

    The fixed rate is 3.7625% is therefore somewhere between the various variable rates.

  • Author
    Posts
Viewing 2 posts - 1 through 2 (of 2 total)
  • You must be logged in to reply to this topic.
Log In

Primary Sidebar

ACCA News:

 

ACCA My Exam Performance for non-variant Applied Skills exams is available NOW

NEW! Download the ACCA Pass Guide

FREE Verifiable CPD for ACCA Members

ACCA mock exams and debrief videos

ACCA Options:  “Read the Mind of the Marker” articles

Subscribe to ACCA’s Student Accountant Direct

Donate

If you have benefited from OpenTuition please donate.

ACCA CBE 2023 Exams

Instant Poll * How was your exam, and what was the result?

BT CBE exam was.. | MA CBE exam was..
FA CBE exam was.. | LW CBE exam was..

Specially for OpenTuition students

20% off BPP Books

Get BPP Discount Code

Latest comments

  • John Moffat on Introduction to Financial Accounting – ACCA Financial Accounting (FA) lectures
  • John Moffat on Linear Programming – Maximum contribution – ACCA Performance Management (PM)
  • d.kabulova on Introduction to Financial Accounting – ACCA Financial Accounting (FA) lectures
  • alin.sivi on Linear Programming – Maximum contribution – ACCA Performance Management (PM)
  • John Moffat on Time Series Analysis – ACCA Management Accounting (MA)

Copyright © 2023 · Support · Contact · Advertising · OpenLicense · About · Sitemap · Comments · Log in


We use cookies to show you relevant advertising, find out more: Privacy Policy · Cookie Policy