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Interest rate used for FV
AFM
answered on 24-May-25 17:50
I've understood why we used the borrowing rate to compute the future value of option premium paid on Day 0. But why shouldn't we see it from the POV that interest is lost on the premium paid out of pocket and use the deposit rate instead to compute FV?
latest answer
Good question Because borrowing rate is higher than Deposit rate Large Companies rarely have too much surplus lying around in low cost deposits They have long term deposits at higher rates and then in parallel have borrowings by OD / CC for short term requirements So for them opportunity cost is not deposit rate but borrowing rate
Ruthvik Reddy Adala
CA Final
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307
Part B
AFM
answered on 24-May-25 18:59
Why have we used exchange rates after 6 months in the final computation and spot rates in other cases to compute profit/loss?
latest answer
Spot rates
Ruthvik Reddy Adala
CA Final
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265
Capital budgeting - sensitivity Analysis
AFM
answered on 24-May-25 18:46
I didn't understand the lifetime factor effect. I found the factor of 2.925th year and tried but it didn't work.
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Life time
Naima Shaikh
CA Final
★ 270
1
233
forex
AFM
answered on 23-May-25 19:09
sir in this question we will have to convert rupees back into gbp at forward rate as in solution you have not converted into gbp to compute gain or loss. sir please clarify
latest answer
GBP
Akshat Sharma
CA Final
★ 510
1
243
forex
AFM
answered on 23-May-25 19:23
sir if we will calculate gain or loss in dollars then we are getting loss of 16311USD by borrowing in usd (3 million usd). is the answer correct?
latest answer
Thanks sir
Akshat Sharma
CA Final
★ 510
2
309
LIBOR vs FRA
AFM
answered on 24-May-25 00:18
Sir, As per my understanding: The conclusion is "One should borrow money @ 5% PA for the first 6 months and 6.75% PA for the remaining 6 months (by Long FRA), and deposit the fund @ 6.5% PA by Shorting FRA" (technically, the funds are idle for the initial 6 Months). If my understanding is correct, kindly clarify the following doubts: 1. If the funds are idle for the initial 6 months, and the question is asked about the total profit, including the arbitrage, can we assume that the funds are deposited @ 5% pa (LIBOR) for computation of interest income? 2. And, if the question is asking about hedging of borrowings for 6 months starting after 6 months, instead of Arbitrage: One should Long FRA instead of Shorting since the LIBOR is 7.9% PA (as per bootstrapping method) which is lower than FRA of 6.75% PA. Please correct me if my understanding is wrong.
latest answer
Ok sir understood now (Full fund was already given as borrowing on Day 1 LIBOR-@ 6.5%), little confused earlier.
Chaitanya Sai Gupta
CA Final
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351
interest calculation
AFM
answered on 24-May-25 06:25
sir, why no interest accrued is calculated for last two securities
latest answer
thanks sir. Now i got it.
Sugathan P.R
CA Final
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274
Expected return as per CAPM
AFM
answered on 23-May-25 20:43
Sir, I had a doubt regarding return comparisons using CAPM. Are both of the following comparisons considered the same, or do they serve different purposes? Expected Return as per CAPM vs Targeted Return, and Expected Return as per CAPM vs Actual Return Also, please explain how the buy/sell decision differs in both scenarios. Whether a stock should be considered overvalued or undervalued when actual return exceeds CAPM return, and how that differs from when CAPM return is compared to a targeted or required return.
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Thank You sir!
Murali Thripuraboina
CA Final
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779
forex
AFM
answered on 22-May-25 20:03
sir can you please provide the calculation of finding the value of d by indirect quote by first finding out f first then d as I am getting d as 5.56% which is not correct at all
latest answer
Thanks a lot sir
Akshat Sharma
CA Final
★ 510
5
310
forex
AFM
answered on 22-May-25 17:21
sir in this example, we should divide 8666.26 by 0.9094 to get the amount in GBP as GBP is stronger currency as compared to Euro.
latest answer
Ok sir thanks
Akshat Sharma
CA Final
★ 510
4
375