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Well, it was alright 🙂
I expected much worse from the “most terrible” acca paper 🙂Question 5 was a no-go type of question, Did anyone figure out how to solve Q4(c).. it was just too confusing, overall paper was a little difficult but hoping for a pass
i feel the qn 1 was quite ok. only one currency quote. no buy and selling rate. i also assumed the forward rate was 4 mth rate. so wat u all think??
and what annual payment you use if loan spread for 4 years ? 60 mln\4 =15 mln + interest charged 2% of 60 mln = 16200 each year , to calculate Macaulay duration ?
That line was given to confuse students, without actual inflation rate you could not use purchase power parity
Please tell me how ro evaluate spot rate in 4 month, I didn’t find it in question
Q2 and Q3 very fair relatively straight forward questions but Q1 was so time consuming, I never got to finish the paper
Q1 had this:
one company can borrow at 0.4% above base rate or 2.2% fixed rate
The other can borrow at 0.8% above base rate or 3.8% fixed rate
How does the swap work?
For the life of me I have no idea but the bank takes a cut of 20 basis points so I stuck in a calc for the fee and left it.
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I committed so many classic errors: poor time management, didn’t read question thoroughly, blah blah. It’ll be by the skin of my teeth, if I pass.
Thanks Opentuition for all the help and support.
Paper was information overloaded and bit hard (especially Q1). How can we be expected to attempt all within 3 hours?
Q1
I just had to assume a spot rate on date of transaction and do the calculations that way.Modified Duration – Did that mean Macualy?
Swap Benefit ( Gain for each party was 40 basis point?), so for Cocoa will be fixed rate less 40 basis per annum?
Q2
NPV was positive after redoing it using APV
Was the DCF 12% approx after using Asset Beta of 1.2 from the Proxy Company?
then Add Financing EffectsQ4
(i) We were to talk about Real options and Investment appraisals (delay, expand, redeploy and abandon)(ii) Had no clue to be honest But still talked about how options can help maximize equity value if considered?
(iii) factors affecting options – value of the asset, exercise price, risk free rate etc?
Vega relates to Volatility (less volatility, less value of option and vice versa?)
All i just believe is I will PASS and wish everybody same.
@williams in swap you add floating rate of one party with fixed of other and do that again with fixed rate of 1st party and floating of 2nd, you get the savings by comparing those answers, then decrease 0.2% fee from each, answer was 0.4% saving each party
@lakeside no maculay duration is not modified duration, if you divide maculay duration by 1 plus YTM you get modified duration
@ williams1977 Calculate the biggest difference so Fixed 3.8 – 2.2 = 1.6 Variable Base rate +.8 – base rate .4. =.4 Therefore the biggest difference is in the fixed rate so who ever can borrow at the lowest fixed rate should borrow at it ie 2.2 and theother should borrow at what ever their variable rate is.
1.6-.4 = 1.2 assume the gain is split 50:50 then they are both 0.6 better off then take off the fee of 0.2 and they both gain 0.4 whether borrowing at fixed or variable
@denys i believe in duration it was 16200 15900 15600 15300 and amount was being repaid then i think interest would have reduced every year
Packard: Q3 was straightforward? Wow man I thought it ws the most complicated question especially c part.
I think Q1, Q2 were of moderate difficulty but Q3 and 4 were wayward to say the least, Thank God I managed to attempt 100% paper but there are uncertainties regarding Q3 part c and also some regarding Q1 duration part, for me.
@captmario Well hope i get some marks for doing to the point of Macauly
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