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Basic Question 0 of 8
In a forward rate agreement, the buyer agrees to ______
II. pay an interest rate to be determined at a future date.
III. receive a fixed interest rate determined now.
IV. receive an interest rate to be determined at a future date.
I. pay a fixed interest rate determined now.
II. pay an interest rate to be determined at a future date.
III. receive a fixed interest rate determined now.
IV. receive an interest rate to be determined at a future date.
User Contributed Comments 7
| User | Comment |
|---|---|
| aggabad | buyer= borrower seller= lender |
| mordja | buyer = borrower = long position seller = lender = short position |
| poomie83 | buyer: pay fixed, receive floating and gains/looses on spread if interest rates increase/decrease |
| johntan1979 | Pay fixed now, receive float later. |
| ankurwa10 | I think Poomie83 and johntan1979 have better explanations/observations on this one. because i know that buyer = borrower; and seller = lender, but the term borrower in my mind implies borrowing now, which causes confusion i.e. why does the buyer have to pay fixed. at least for me, better to memorise what poomie83 and johntan1979 said. |
| adidasler | you don't pay now ... you pay later ... interest is fixed but paid at the date you get the LIBOR rate at whatever it is in the future |
| Patdotcom | the answer is contradictory. The buyer pays now or at a future date? |
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Learning Outcome Statements
calculate and interpret alternative price multiples and dividend yield;
calculate and interpret underlying earnings, explain methods of normalizing earnings per share (EPS), and calculate normalized EPS;
explain and justify the use of earnings yield (E/P);
describe fundamental factors that influence alternative price multiples and dividend yield;
calculate and interpret the justified price-to-earnings ratio (P/E), price-to-book ratio (P/B), and price-to-sales ratio (P/S) for a stock, based on forecasted fundamentals;
calculate and interpret a predicted P/E, given a cross-sectional regression on fundamentals, and explain limitations to the cross-sectional regression methodology;
evaluate a stock by the method of comparables and explain the importance of fundamentals in using the method of comparables;
calculate and interpret the P/E-to-growth ratio (PEG) and explain its use in relative valuation;
calculate and explain the use of price multiples in determining terminal value in a multistage discounted cash flow (DCF) model;
explain alternative definitions of cash flow used in price and enterprise value (EV) multiples and describe limitations of each definition;
calculate and interpret EV multiples and evaluate the use of EV/EBITDA;
CFA® 2025 Level II Curriculum, Volume 4, Module 23.