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Hi Sir,
With regard to the Global Sample Question relevant for exams from December 2010 provided in ACCA past papers section, I have the following questions to ask:
With regard to the answer, Appendix 3:
1. Cost of equity = 3 + 2.014 x 6%. Does the 3 represents risk-free rate of return and 6% is the equity market risk premium?
2. WACC = (15.08% x 364)…… How to get the figure of 364?With regard to the answer, Appendix 2:
1. Black-Scholes Option Pricing
d1 = 0.234
d2 =-0.190Could you advise the detailed steps on how to find the N(d1) value of 0.0925? It is not shown in the standard normal distribution table.
Thank you in advance!
1) Yes – 3% is the risk free rate, and 6% is the equity risk premium (the difference between the market return and the risk free rate)
2) 364 is the total market value of the equity (104 shares x $3.50)
3) if d1 were 0.23 then the tables give 0.0910; for 0.24 the tables give 0.0948
for 0.234 he has approximated between the two, assuming linearity: 0.0910 + (4/10 * (0.0948 – 0.0910))
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