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All in cost

AFM

answered 1 day ago

Hi sir, In the question they mentioned " P ltd., a dealer, quotes 'All in cost' for generic swap ". what is meant by 'All in cost' ? Is it fixed interest rate? and Is it fixed interest rate in just this illustration context or in any other question if they use 'All in cost' should we consider it as fixed rate only ?

latest answer

All in means without any additional fees - including all interest payments to be made in respect of this loan All in diff contexts can mean either fixed on variable. In this question it means fixed cost

B. Dinesh

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Why we consider only FCFF

AFM

answered 1 day ago

Is how can we identify that we should Only FCFF here??

latest answer

Pls be specific - which Q no?

Surya Prakash

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21

profit/ loss in futures

AFM

answered 1 day ago

Hi sir, In futures when interest rate is 4.5% we will sell future @ 94.15 and bought back @95.5. So the loss is 1.35 Euros (94.15-95.05). But why we took 1.35 %, isn't it 1.35 Euros loss for 1 future ?

latest answer

On a FV of Euro 100, loss of 1.35% is 1.35 Euro

B. Dinesh

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Interest rate guarantee

AFM

answered 1 day ago

Hi sir, In interest rate option you said it is also called as interest rate guarantee. But in interest rate option we have 3 fixed options i.e. cap, floor and collar. But here we did differently from those 3 options. so can you please explain what is meant by and what are the properties of interest rate guarantee in this illustration context.

latest answer

When you are in the money i.e. making profit, if you have an option to exercise, will you exercise or not? You will exercise right? So at that point option is not an option but a Certainty. In part 2 , guarantee by bank refers to fact that you as a borrower have option to borrow a loan at market rate or rate promised by bank - you will choose what is beneficial to you. It is an interest rate call option. Caps are a series of call options Int rate guarantee is same as int rate call option

B. Dinesh

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21

Issues a loan

AFM

answered 2 days ago

Hi sir, here they said XYZ Inc issued loan, so doesn't it mean XYZ issued loan and it will receive interest

latest answer

Here think of it as issuance of a bond. When you issue bond, you pay interest. Secondly when you buy a cap it means, that you are trying to restrict interest payout.

B. Dinesh

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Cost of the collar

AFM

answered 2 days ago

Hi sir, in the end they asked us to explain the cost of collar, does it mean the payment/ receipt of collar or premium paid for cap and premium received for floor ?

latest answer

In this q they asked abt cf and also cost of the collar. It is a zero cost collar based on the question, so obviously the questions intent is more abt cf due to collar

B. Dinesh

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23

Bull calendar spread

AFM

answered 2 days ago

Could u please tell me the video number where bull calendar spread concept is explained?

latest answer

The video was corrupted and since this is not in syllabus anyway we did not record it again. Gave concepts in notes

Hanumanthu Rajesh

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Collar

AFM

answered 2 days ago

Hi sir, In collar can we go long on floor and short on Cap ?

latest answer

Yes that will be a short collar usually used by lenders to freeze income within an interest rate range

B. Dinesh

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15

Calculation

AFM

answered on 16-Jun-24 08:54

In this sum, can beta be calculated using an alternative formula? The answer varies so would I get marks for it or not? Also, which formula is generally preferred to calculate beta (ranking of selection such as CAPM for Ke)

latest answer

all formulae for beta will give same results when we have enough data. With 2-3 data points sometimes these issues arise where beta is diff per diff method. There is no preference of a method to compute beta. If any one key variable is given like Co variance or correlation then it is suggested you use the formula with that variable. You will ideally get marks irrespective of which method you use as long as you use all the data given in the question.

Priyanka Udeshi

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Hillers Model Formula

AFM

answered on 16-Jun-24 12:57

Good morning, Sir. Sorry for disturbing you. I have an issue about calculating the standard deviation of the expected value or the PV Distribution. Sir, I need to use the Hillers model formula in my exam and if yes how to apply it. Alternatively, can I use this equation (Shown in Image) to compute the standard deviation of expected values.

latest answer

ok thank you sir

RAJKUMAR S

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