2012 MOCK Q44 - QUICK Q

Hey - cheers for all the help.

On these two (Q44/45) they calc the future value of the premium using libor + spread. In schweser it’s just libor which makes more sense. Why do they calc the future value using the spread?

you mean 47/48…

Call and Put - it is always LIBOR + Spread. (at least per CFAI text).

It is the “opportunity cost”. If you are borrowing + lending at Libor + spread - the same should apply to the premium as well.

Agreed. The opportunity cost has to factor in the firms borrowing cost. In all liklihood its going to be irrelevant because the impact of a few basis points on the option premium isn’t going to impact the calculated return materially.