• We are pleased to announce that the winner of our Feedback Prize Draw for the Winter 2024-25 session and winning £150 of gift vouchers is Zhao Liang Tay. Congratulations to Zhao Liang. If you fancy winning £150 worth of gift vouchers (from a major UK store) for the Summer 2025 exam sitting for just a few minutes of your time throughout the session, please see our website at https://www.acted.co.uk/further-info.html?pat=feedback#feedback-prize for more information on how you can make sure your name is included in the draw at the end of the session.
  • Please be advised that the SP1, SP5 and SP7 X1 deadline is the 14th July and not the 17th June as first stated. Please accept out apologies for any confusion caused.

accumulated sum

A

asmkdas

Member
On 1st April 2008, an oil company launched a 4 year financial instrument where, for each unit of financial instrument, the purchaser had to pay a premium of Rs. 1,500 p.a. at the beginning of each of the 4 years. In return, the purchaser would get a lump sum at the end of the 4 year term. the effective rate of return to the purchaser was fixed at 9.5% p.a. from 1st April, 2008 to 1st April, 2010 and 10.5% p.a. thereafter.

The Oil Company invested the premiums as and when they were received in an overseas assets which paid a return to the company as per the £ price of one barrel crude oil. The crude oil price (£ per barrel) and exchange rate (Rs. per £) over the past few years are given below:

Date - Crude Oil price in £(per barrel) -Exchange rate(Rs.per £)
1st April, 2008- 55- 45.5
1st April, 2009- 53.5- 48.1
1st April, 2010- 70- 50
1st April, 2011- 90- 48
1st April, 2012- 111- 49.5

Calculate the amount of accumulated profit (in Rs.) the Oil Company makes on 1st April, 2012 for each unit of the financial instrument. Assume that the Oil company takes out all the amounts invested in the overseas asset on 1st April, 2012 to meet its liability.
 
The 1,500Rs received on 01/04/08 is converted to (1500/45.5) = £32.97
On 01/04/2012 this has grown to 32.97*(111/55) = £66.53

The 1,500Rs received on 01/04/09 is converted to (1500/48.1) = £31.19
On 01/04/2012 this has grown to 31.19*(111/53.5) = £64.71

The 1,500Rs received on 01/04/10 is converted to (1500/50) = £30.00
On 01/04/2012 this has grown to 30.00*(111/70) = £47.57

The 1,500Rs received on 01/04/11 is converted to (1500/48) = £31.25
On 01/04/2012 this has grown to 31.25*(111/90) = £38.54

So in total on 01/04/2012 we have 66.53 + 64.71 + 47.57 + 38.54 = £217.35
This converts into 217.35*49.5 = 10,759Rs

Then we have to repay our borrowing:

For the 1,500Rs received on 01/04/08 we owe 1500*(1.095^2)*(1.105^2) = 2,196Rs
For the 1,500Rs received on 01/04/09 we owe 1500*(1.095)*(1.105^2) = 2,006Rs
For the 1,500Rs received on 01/04/10 we owe 1500*(1.105^2) = 1,832Rs
For the 1,500Rs received on 01/04/11 we owe 1500*1.105 = 1,658Rs

In total we owe 2196 + 1987 + 1832 + 1658 = 7,691Rs

Giving a profit of 10750 - 7691 = 3,059Rs for each unit sold
 
You must log in or register to reply here.
Back
Top