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sorry jetta i took this paper last sitting. Cannot recall.

Good luck though.

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As with all professional papers, P4 and P5 requires a good basics, viz. fundamental knowledge.

It’s like learning algebra; it’ll be easier if you’re good at adding, subtracting, multiplying, etc. Something like that, but at a higher scale for P4 and P5.

You can always catch up if you lack the basics, but be prepared to get confused many times and must have the determination to read a lot. P4 is fun though, it’s not a boring subject.

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@ace

Sorry i dont have any reference. My lecturer mentioned this in class. I would say he’s quite reliable because he reads up on these weird stuff.

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Discursive questions were very open and confusing – not sure what they really wanted. It feels like the examiners formulated the answers first, and they came up with the question to suit it. Trouble is, we can’t read his mind well enough to intepret the question!

Also, did anyone notice the mistake in Q2? The heading of the probability table given. It should be “no. of students” instead of “student fees”.

Princeacid: to calculate the EV, u need to list down all 9 possible outcomes by pairing the outcomes up. Then calculate the adjusted profit for each outcome individually, add them up together to get ur net profit.
Get combined probability by multiplying probabiliyt of outcome 1 with probability of outcome 2. Multiply the results again to obtain the EV. Finally, sum them up together.
Lengthy, took me 5minutes to figured out what they really wanted.

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@chipbanda said:
ACCA is taking us for granted. They told us that they have changed the examiner and it was good news because Bob Ryan sets exams that are beyond P4. However, it seems ACCA fooled us. Bob Ryan is still setting P4 exams and the new examiner is just reviewing the paper. Isn’t this fooling us? Go to ACCA website and see the examiners list. You will see that the current examiner has been put there just to review. ACCA is happy with Bo Ryan.

ACCA papers are set 18 months beforehand i think. Hence, this sitting’s paper was set by Bob Ryan because 18 months ago he was still the examiner. The new examiner is, well, new and he only reviewed the paper that was set by Bob Ryan way before he was appointed.

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@studystudystudy said:
I think the idea was that the exam question wanted to incorporate growth of cashflow inside the annuity formula? I just used it anyway since it was given.

For question 2 did anyone use Gordon’s growth model? eg. the Ke = 12.56% x (180/580)

Q1. Using the formula to find the annuity factor would result in a negative figure no?

Q2. Yup i did this for g too.

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I think the questions were fair. ACCA brands its qualification to be of the same standard as a masters programme. Hence it wouldn’t be right and fair if students can pass just by scanning through the text kit and attempting a few questions, hoping that questions of similar sort will reappear.

Bob Ryan, the examiner, sets tough papers to uphold standards. Read his blog post and comments to understand why he’s doing this.
https://professorbobryan.blogspot.com/2009/11/fools-p4radise.html

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Q2’s based on the latest tech article on option pricing.

Did anyone think that the annuity factor formuia in Q1 was wrong?

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This’ the collar hedge question from the exam kit right?

I’ll try to provide what i know.

When you hedge using a collar for DEPOSITS, means you want to limit the minimum interest that you want to receive (this can be calculated using the minimum interest rate that the company requires). Vice versa for borrowings.

Hence to set up a collar for DEPOSITS, you need to buy a call option (to set a floor) and sell a put option (to set a cap). Draw the graph, with cap line on top, and floor line at the bottom, and you’ll notice that the corresponding strike price for call option should be higher than the put option.

That’s why the answer shows only 3 possibilities.

Another thing to note is that when you buy the call option, you pay the premium. While selling the put option, you receive the premium. So from this, you estimate the outcome.

Hope this helps a little.

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The airplane question, you’re right both companies are in the same industry.

Burcolene and Petrofrance (I’m guessing this from memory that it’s this question) however are not. I think question states that Burcolene is a MANUFACTURER of petroleum goods, whilst Petrofrains is involved in EXPLORATION and HARVERST or something of that sort.

PS: I might get the company and industry messed up, but just check with the question.

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Per the question,

Recovery value of the property
= (MV @ 31/12/14) – (repair cost @ 31/12/14)
=(value at 31/12/09 X rise in property value in nominal terms*) – (cost @ 31/12/08 X inflation)
= (6.2m X 1.107^5) – (1.2m X 1.025^6)
= 8.9153m

*use the fishcher formula thingy to convert from real (8% given in question) to nominal

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Just did the question today, can now answer your 3rd question.

It’s used to calculate the new combined asset beta because 1,231 is the remaining value of the property section of the business.

Before the reconstruction, your property portfolio value is
= value of landbuilding + value of assets under construction
= 2297+165
=2462

Since 50% of each category was disposed during the restructuring, the balance of the portfolio is also 50%, i.e. 1231.

Vr is hence the residual.

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Hi John,

Just need a little further explanation on the no. of contracts.

Why in this question, it is different from the way we usually calculate? i.e. (Payment or receipt amount)/(contact size) , where there’s no delta hedge involved.

I’m guessing that in this instance, they are not going to exercise the option, but are trying to use the gain/loss on option to offset against the actual exchange?
While in the usual method the option are to be exercised.

Hope i’m right.

Thanks again, appreciate your time and effort.

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I hear you haha. I scrapped through P3 with 51!

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I think even if you’re wrong, probably will lose about 2 or 3 marks max. Carry forward mistakes will not be penalized. So, better to move on to other things. Just pray that the paper is not ambiguous.

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Assumming that it’s an APV question, discounting using ungeared Ke for base case NPV is correct.

Because the financing effect is calculated separately.

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It’s consoling to know that someone else in the world is having a cracked head over this haha.

Anyways, here are some updated findings:

1. I’ve checked with BPP study text, and it seems that your original statement is right.
i.e. Say the local currency is GBP and foreign currency is Euro,
Euro/GBP=0.6900 means 1 GBP = 0.6900Euro, an indirect quote. vice versa for direct quote.

2. Bob Ryan’s book “Corporate Finance and Valuation” and Kaplan’s study text seem to support this too.

3. I remember my lecturer mentioned in passing, saying that there are two conventions/ways to quote forex rate (i may be mistaken on this, so pardon the inaccuracies).

One is as above, where Euro/GBP=0.6900 means 1GBP=0.6900Euro
The other is where Euro/GBP=0.6900 means 1Euro=0.6900GBP (this is per investopedia).

So perhaps ACCA adopts the first approach.

4. Seeing that Investopedia and a few other sites are the only inconsistencies, I think I’ll stick with what you’ve mentioned earlier. But the best way is probably to know the real forex rate in life. e.g. GBP is bigger than USD and Euro, that way we can double check.

So in Pilot Q2, the correct rate is probably 1Euro = 0.6900GBP, a direct quote.

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“Direct quotation is where the cost of one unit of foreign currency is given in units of local currency, whereas indirect quotation is where the cost of one unit of local currency is given in units of foreign currency”

I think you got it inverse.

Direct is how much of foreign currency can 1 units of local currency buy.
Indirect is how much does 1 foreign currency cost in local currency.

Check this: https://www.investopedia.com/university/forexmarket/forex2.asp

Home I’m right!

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I’m recalling this off my memory so it may not be that accurate.

1. It should be mentioned somewhere in the question. That’s why P4 is so darn difficult, you need to be real sharp to catch things like these.

2. take the industry’s. You’re given the gearing and the industry’s Beta asset.

3. Sorry really cant recall this.

4. Yes it’s debt. Things like provisions are not included.

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Some info i got from the internet.
FOREX are quoted in this way, e.g. GBP/EU
The left side is called the base currency, while the right side is called the counter currency.
If the home currency is on the left, i.e. the base, and the foreign currency on the right, i.e. counter currency, then it is a direct quote. e.g. GBP/EU = 1.5 means that 1GBP = 1.5EU

Indirect quote is the opposite, where the foreign currency is on the left, i.e. the base, and the home currency is on the right, i.e. counter currency.

I’ve been cracking my head over this question and i think there’s a mistake to it.

“EUR 0.6900 to the pound” means 1GBP = 0.6900EU, according to the suggested answer. This sounds correct if you intepret it in language terms. “to the pound” means 1 pound. Hence 1GBP = 0.6900.

However, this is quite strange because Bob Ryan, the examiner, always uses real life scenarios. So implying that the EU is stronger than GBP is inaccurate.

Second error in the question is the calculation of the forward rate using IRP formula. The formula is

Spot rate(indirect) X (1+ic)/(1+ib)
where
ic= interest rate in counter current country, i.e in this case should be UK’s interest rate as this is indirect quote. But the suggested answer puts ic as the EU interest rate.
ib= hence should be EU’s interest rate, but the suggested answer puts it as UK’s.

Can anyone please confirm the above error?

Thanks.

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