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QuestionsCategory: Financials QuadrantStress-test Interest rate hike
Yong asked 4 years ago

Hi, in Breadtalk example – there was a mentioning of stress-test interest rate hike of 10%.

a) How do we actually come to an assumption of possible 10%?
Example: Current interest rate is 6%.
b) Do we change present interest expenses (6%) into a 10%? And recalculate the interest coverage ratio?

1 Answers
Victor Chng answered 4 years ago

Hi Yong,
It is just an assumption if the interest rate will to go up till 10% but in reality the probability will be quite slim. This is the assuming the worst case scenario.
If the current interest is about 6%, you just have to take the amount divided by 6 and multiply by 10 to get the interest rate amount at 10%. With the assumption amount then you calculate the interest coverage ratio.