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Interest rate is per month not per annum.

AFM

answered 23 hrs ago

Hi sir, while computing the cost of carrying we have to multiply the spot with interest rate for 3 months. In the question they have given interest rate as 15% PER MONTH. SO the formula for cost of carrying should be [ Spot*15% per month* 3 months]. But what you have taken is [spot*15%per month*3 months/12 months]. Why we have to divide it by 12, even though they have given the interest rate PER MONTH ?

latest answer

Also, if nothing is mentioned always take interest rates as pa. other than in money lending business with small time lenders, every where else in established financial services business banks etc all interest rates are quoted on a pa basis and not monthly basis

B. Dinesh

CA Final

★ 3K+

Release of working cap

AFM

answered 19 hrs ago

Usually we take release of working cap at end but wanted to understand why do we do that since it is a sunk cost deployed in business and would be utilized in operations right?

latest answer

understood, thanks a lot!

Priyanka Udeshi

CA Final

★ 14K+

inflation

AFM

answered 1 day ago

Sir in this question, ICAI has not adjusted the inflation in each yrs revenue and costs. I understand you'd done it similar to an Illustration solved earlier but how do we interpret whether inflation rates are to be adjusted in the CFs (where real/ nominal is not mentioned)

latest answer

Depends on question if icai does not provide clarity yuu have to make an assumption. In this question too one can assume no inflation and work like icai

Priyanka Udeshi

CA Final

★ 14K+

Mutual funds

AFM

answered 2 days ago

Illustration 8 answer is not 12.64 it is 12.76(12/.94)

latest answer

No. Solution is correct. Please have a re look at formula and our notes P 590. Check icai material page 8.16 too https://resource.cdn.icai.org/74835bos60509-cp8.pdf

abin c s

CA Inter

★ 2K+

interest rate collar

AFM

answered on 06-May-24 11:07

In this question if instead of Cap option, collar option was taken would that be more advantageous?

latest answer

I know. That was weird. You can state that in a collar you sell a floor. If floor is set at lowest rate the interest has gone to in the questions then floor will never be invoked When such a floor is sold, you receive premium That premium will reduce your outflow of 70 or 80 bps and If it that premium received is also 70 or 80 bps then the collar can become a zero cost collar

Priyanka Udeshi

CA Final

★ 14K+

Bootstrapping

AFM

answered on 05-May-24 04:34

Request if you could help me to recollect where the bootstrapping formula (as used in this sum) was used in any earlier part/ chapter?

latest answer

Sec val fixed income spot rates forwardcrates

Priyanka Udeshi

CA Final

★ 14K+

Calculation error

AFM

answered on 04-May-24 20:51

The cap and floor amounts have been mentioned interchanged columns and also the final total is coming at 1663698. Also, the ICAI soln in the enclosed pdf for the same sum have taken interest costs without considering 0.5% for dates 30-6-15 and 31-12-15. Please confirm if the same is an error or not?

latest answer

Thanks for highlighting printing errors, corrected them. Also will change total as highlighted Coming to ICAI solution, please note They have forgotten to add spread in their computations for 4th and 5th installments. They added 0.5% int in payments 1to3 & 6

Priyanka Udeshi

CA Final

★ 14K+

Exponent

AFM

answered on 04-May-24 19:46

`In calculating EMA for 12 days why a=2/(31+1) and why not 2/(12+1)?

latest answer

Because they said use 31 day EMA