Hello, Can someone help in clarifying these questions from April 2021 session? Q4- part v) The term of risk free rates given isn't very clear to me. For calculating forward price for 2 year forward, are we assuming that risk free rate is for 2 year period and not as at given date? In the accumulation factor, I was assuming 1.2% for year 1, 1.3% for year 2 and so on until I looked at the solution. Also, when calculating total profit/loss on each forward, the final step is giving me a different answer. For example, for 1 year forward, total profit= 2.76 (same as Examiners report) *1500000 (number of forward contracts purchases, assuming 1 metric tonne per contract)= 4140000 but the solution in the report is 4134940. Am I missing something? Similar concern with 2 year and 3 year contracts. Thank you!
Q2. part iv) The formula quoted in Core Reading for xd adjustment is xdi,t = (Di,t * N i,t )/B(t-1) I could not follow the definition of B(t-1). This part of the question is a direct application of core reading but why is B(t-1)= (2050/1000) here? Why would we consider the whole market capitalisation (2050 vs only 450 for company 2 and 5) when we are calculating xd adjustment only for 2 companies? Understanding the meaning of B(t-1) should answer this I suppose. Please help.
