[jonathanlecuyer]

Hi,

Also related to the same exam question Talam.

Just to make sure I understand the choice between Call and Put when using the BSOP calculation:
– When we look to delay a decision it is a CALL
– When we abandon a project it is a PUT
– When it is an option to exploit a follow up project it is a CALL

So in this question, when we assess the offer to from Honua, it is like if we abandon the project which is why it is a PUT
And when we assess the other projects, it is a follow up project so it is a CALL

Is that the logic we need to follow to decide between CALL and PUT?

[jonathanlecuyer]

Sir,

Hope all is well.

I would like to use this thread to add a question regarding a) i) and ii)

I understand the calculation and I understand that in ii) the point is to get a fixed rate to eliminate the risk from the interest rate to go too high.

But if I just read the questions as I did first, I was ok looking at i) because we calculated the swap by:
– Yearly interest payment based on the fixed rate
– Yearly interest receivable based on the yearly yield curve rate that is changing every year (and as we see, we pay more in first 2 years and then gain the years after

But when moving to ii), I dont understand why we suddenly pay the fixed rate but also the floating rate (+0.5) and the receivable of the floating rate (-0.2)
Yes it is to get a new fixed rate to remove the risk.
But by reading the questions, I dont understand why we did that in ii) but we did not do that in i)
why in the first part (i), we dont also include then the 2nd payment based on the floating rate (+0.5)?

[jonathanlecuyer]

I passed with a 64. I’m so happy!

[jonathanlecuyer]

Hi, regarding pay off table, there was a change in the syllabus:

Topics leaving the paper: There are two significant changes to be aware of:
1. Risk and uncertainty (previously syllabus section B) has been removed as a topic that can be examined numerically (expected values, maximax, maximin, minimax regret) and repositioned as a discussion area (syllabus section A1g).

2. Corporate failure has been removed from the syllabus

[jonathanlecuyer]

So to confirm, the time limit to finish P1 and P3 is September 2018; We still have some time.

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