- This topic has 3 replies, 2 voices, and was last updated 11 years ago by
.
- Posts
Hello John..
I attempt to do this Q but I can’t move on. Trying to understand the solution, I can’t get how the amount for Sterling Euro forward (direct) is produced? And then of course the Annual Volatility of £/Euro-why is the calculation of 6.35% must be calculated with the power of two then after that must be multiplied by 12? Is this figure made up to produce the variance monthly then we get the annual volatility? Please enlighten me.
Two more Questions are:
1)John, may I know if the FORMAT OF THE REPORT has changed? This is because I saw the solution for P4 December 2012 Question 2, it was made as follows:
Report to ___________, Name of the Company
Title
Brief description of the report
Sub-headings and elaborationReport compiled by:
Date:
Do you mean the coming paper, the format should be exactly just like this?2)Question 3 Pilot 2006 (Jonas Chemical Systems Ltd)
I have attempted b) but was confused with the solution under heading of Probability of a Positive NPV and Project Value at Risk
Why the ‘mean’ has to be Zero?
Can you explain this verse,’The volatility attaching to this NPV of $1.02million indicates that there are (Z) standard deviations between the expected NPV and a zero NPV(I don’t understand why zero NPV?).Thank you very much for reading. Hope to hear from you very soon 😉
The Grabbe variant of the Black Scholes option pricing model was removed from the syllabus 2 or 3 years ago and cannot be asked.
Your question about the volatility could still just be relevant because standard deviations are used in Value at Risk calculations. We cannot add standard deviations together – we can only add variances together. The variance is the standrad deviation squared.
So….if you have the standard deviation per month and you want the standard deviation per year, then you square the std deviation to get the monthly variation, then you multiply by 12 to get the yearly variance, then you take the square root to get the yearly std deviation.The is no standard format for a report – all companies tent to lay them out slightly different.
The main thing is that it should have a date; the name of the person it is addressed to; a heading; an introductory paragraph; and a closing paragraph. As far as possible, any calculations should be kept separately as an appendix.
Question 3 is not saying that the mean is 0. The mean is the expected NPV which is 1.02M. However, because of the uncertainty the NPV may end up being higher or lower. Provided it is positive then it is still OK, but if the NPV fell below zero (i.e. negative) then it is obviously not worthwhile. So the answer is calculating the probabilty of the NPV falling below zero (when the mean is 1.02M).
Hope that helps.
PS The pilot paper you are looking at was prepared by the previous examiner who was dreadful and was removed. The current examiner is much fairer.
oh i see.. ok now i understand the standard deviation part.. that have to attempt like that.. thank you very much, John! You are really helpful! I am grateful that you responded quickly. I forgot the grabbe variant was removed.. Thanks again.. 😉
Actually John, before I attempt those Questions, I was planning my answer… and then I got stuck at the Grabbe Variant part.. and blaming myself for not remembering the method and how to do that.. -_-‘
But I realized the Pilot 2006 was really hard to attempt, and I wish the coming exam was not going to be like that, please..
As for me I found the Q4 (a) only the best part that I could do.. When I say hard, I mean the report as well, when I re-write the answer, it was just too lengthy but the discussion was still relevant though except for part Q4 (b) about finance the debt in USA and China I was just about..is this really the solution? I think my mind still can;t go that far.. That’s why I am afraid and trying to do all mocks if I still can..huhuThanks John, by the way 🙂
- You must be logged in to reply to this topic.