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Part A) The exam tested currency futures to hedge an investment including Margin calculations and gain and loss on the futures. The dividend capacity and shortfall due to investment. Daily marked to market on futures to calculate gain and loss. And range of discussions about comparison of hedging methods.
Part B had Investment appraisal, with option to delay and discussion about NPV and BSOP.
Part C had restructuring via sell off and demerger. Asset beta calculation asset based valuation and free cashflow to equity valuation. I think part C was very hard because it was not known where to get the equity value of two divisions as no percentages were given for the separate equities. Required lots of time to think.
I had a different exam. Part A was hedging of currency investment in a new country and also interest rate options and collars. Annoyed as I didn’t get the FRA on interest or collars correct but nailed the options part. Then theory on borrowing internationally with political issues and risk management theory.
Part B was demerging a division with FCFE and market cap method. Feel like I done ok here but totally screwed market cap method due to time. Theory on MBO vs MBI was nice.
Part C was also nice. NPV, IRR, MIRR, Payback and value at risk. Then theory on the usefulness of each method and other analysis suggestions. Other than missing payback period completely here, I think I performed ok here. Hoping this gets me through.
Heavily theory based exam, 40% calculations 60% theory. Do not underestimate the theory of AFM.
The Exam was challenging because there was a lot of theory related questions but could have been much worse.
Q1 (50 marks) – hedging question
Currency – Forward contract and future currency
Interest rate – FRAs, Traded options and collars.
Risk management on disclosing political and financial risk in the reports.Q2 – investment Appraisal- calculate and discuss the usefulness NPV, IRR, MIRR, Duration, VaR and suggest the financial analysis.
Q3 – Market capitalisation and FCFE – using beta factors to get cost of capital. MBO vs MBI for selling of division .
Collars in Q1 threw me off a bit and ran out of time to calculate the market capitalisation method
My exam was somewhat similar to The ACCA pre-mock exam wish the debrief that I went through last night.
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