[Gosia]

Thank you so much for the reply.

I have been told that:
– for put options deduct premium for strike and pick one that gives lowest borrowing rate
– for calls add premium to strike and pick one that gives highest rate for deposit

I’ve got no problems with calculating them so I’d rather do calculation for all given strike prices to make sure I can get all the marks 🙂

On the revision course I’ve also been told to leave off the basis calculation as students find it complicated and it’s only worth 1-1.5 marks and just use the futures price given.
But when I got my mock paper marked I lost quite a lot of marks on the hedging question by following both of the above.

I assume that, as I’ve got no problems with the calculations, it’d be better to actually do them for: 1. all strikes and 2. calculate the basis?

[Gosia]

Hi John,

thank you so much for the reply.

On the revision course we were told to:
1. for put options – deduct premium from strike and pick the one which gives lowest interest for borrowings
2. for calls – add premium to strike and choose one which gives highest interest on depreciation.

The other thing was, we’ve been told that as some students struggle with basis, just to omit this and use futures price for the calculation.

Having done both of the above, I received very few marks on my mock exam for the hedging question.

I assume that if I don’t really have any problem with either doing calculations for all strike prices, or calculating the basis, I should just do both to be able to get as many marks as possible.

thanks,
Gosia

[Gosia]

Hi John,
I’ve noticed that model answers to options always calculate the results for all possible strike prices for given options (e.g. both December strikes in this question).
I’ve been told to chose the most favourable strike price and calculate the result for that one only.
Would I lose any marks for doing this (assuming I will give an explanation why I’ve chosen that strike price, e.g. to maximise receipt) or would that be ok?
I don’t want to lose any easy marks, please let me know.

Thanks,
Gosia

[Gosia]

A very belated thank you for the reply!

[Gosia]

Hi Aaron,

Using the growth model P=(div x (1+g))/r-g :
and as there is no growth expected next year:
P = 0.23 / (0.12-0.03) = 2.56

Corp tax is irrelevant here

Hope this helps!

Gosia

[Gosia]

Thanks John. I always do all the workings for all the other things but never included detailed workings for inflation adjustments. I know how to do them but I was usually adding workings only for first 1-2 years to save time and then putting final answers only. I will definitely include all of them tomorrow to get some extra easy marks 🙂

Thanks again!
Gosia

[Gosia]

Hi John,

could you please let me know if I need to provide workings for sales revenue, variable and fx cost when inflation is included in the DCF question (let’s say Q4 in Dec14 exam) or would the final figure for all the above be enough to get max points?

Thanks,
Gosia

[Gosia]

First attempt, self study and I got 74%, I could not believed it!
Thank you Open Tuition for all the materials and videos, wouldn’t have made it without them!

[Author]

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