- This topic has 98 replies, 49 voices, and was last updated 2 months ago by brianthomas.
- September 11, 2020 at 9:48 pm #585202Chrismartin
Largely agree with Danni, the software is diabolical considering its been around a few years now in the foundation level.
Whilst you may think that it saves time with the sums and formulas, which to be fair it does, all that tike saved is lost flicking back and forth through exhibits and stuff. There’s not enough screen space to have all relevant information in front of you.
Really they need two screens. One for the word processor and spreadsheet and the other for exhibits and requirements.September 11, 2020 at 10:10 pm #585204inventel
hi everyone, does anybody remember how the cost of capital was calculated in the 3rd question when doing the NPV i just could figure it out and its driving me crazy remembering about it. the question had 4 different investment appraisal techniques to use. Any feedback is much appreciated. ThanksSeptember 11, 2020 at 10:24 pm #585205Tamas
I had the same questions. If I remember the q gives you the mv of equity and the mv of debt plus the pretax kd so you only needed to find the ke.
Beta asset was also given so can use the asset beta formula to find be. Plug this into Capm and wacc it and gives you a do of 9%. Hope this helps?September 11, 2020 at 11:18 pm #585216tyjac
You are on point mate, you sound like you have passed if you managed to answer the other discursive questions as it wasn’t hard. I totally slipped over the bond to maturity question as the information gathering looked too time consuming. I would have confidently said I probably pass had I not stupidly mismanaged the last hour on the foreign NPV question. The question was actually straight forward but I couldn’t get my head around the choice of words, as it wasn’t too clear to me on certain points like the tax exempt for the land disposal, the €10 sale etc. I have learnt it many months back, but. Just totally forgot about it.
Really kicking myself now, as I could have spent that time cracking on with the bond question and would at least secured marks to boarder line pass the exam, now I’m expecting marks in the region of 45-53 🙁 Same situation as the SBR exam I took yesterday!September 11, 2020 at 11:33 pm #585217tyjac
Agree 100% with you on the damn screen size and flicking back and forth to refer to the exhibits and word processor. Definitely need 2 screens in order to work efficiently otherwise this is clearly a disadvantage on taking cbe exams compared to paper exams with the same time allocated. So unfair.September 11, 2020 at 11:54 pm #585219shaned
Ya, I did exactly this.September 12, 2020 at 3:03 am #585222lawatiali
Exactly I was suffering the Same screen limited space issue on my laptop but then I decided to to do it on my 27 inch screen. I was totally satisfied as I was able to display word, excel and the question at the same time.September 12, 2020 at 3:08 am #585224lawatiali
That is so sad my friend.
My AAA exam got freezed in the middle as well.
What is a reschedule form?September 12, 2020 at 5:44 am #585230accboy729
also using 20% taxSeptember 12, 2020 at 5:59 am #585232accboy729
sounds like CBE question more easier.September 12, 2020 at 6:37 am #585237ellealex
So that paper was terrible.
For Q1: how are you supposed to calculate the new market value of bonds & yield to maturity?
For Q2: spent too long struggling with the NPV. Didn’t know how to do the contribution part?
For Q3: how were you supposed to do the futures? in short form or long one?September 12, 2020 at 6:40 am #585238Magdalena
As for yield to maturity, I calculated it exactly in the way you described. But now I think that perhaps we should rather use the formula using mkt value (mkt value = CF year1*(1+r)+CF year2*(1+r)^2 etc…) and calculate r as ytmSeptember 12, 2020 at 7:02 am #585241dharyn
The hedging part was a let down, I thought I mastered futures but the question was twisted, provided contract in indian rupees and I’m sure it confused a lot. I think the loss on futures had to be converted in dollar and then multiplied by no of contracts and contract size to get the correct figure. I didn’t convert to dollar and rushed through it. The question resembles a previously examined question namely Washi which came out in sep 18. The futures however were denominated in the local currency which made it simple. Totally disappointed, I revised AFM for months and didn’t expect a question of such sort.September 12, 2020 at 8:19 am #585255Linda
The more I think of the exam yesterday, the more I think I will be resitting in December.. the NPV q in Q2 completley threw me and I wasnt able to answer the discussion element due to time.
FX Q – I think I did ok on part a but again the FOREX/currency swap question was left unanswered as I thought these were the same.
Q1 I thought I did ok but the more I look back I think I made a mess of the beta element
I got 43 and 44 in my last two attempts of AFM, praying that I get the 50 this time
I dont like the CBE platform, many silly little things are taking too much time in an already time pressured exam even with plenty of practiceSeptember 12, 2020 at 8:59 am #585262rohan123
Transfer price was 10 Euro and Manufacturing Cost was 2 Euro.
So, the Pre-tax contribution for us is 8 Euro.
So, Sales volume * 8 * inflation in euro for each year.
Then you need to deduct tax from the contribution. i.e. 20% taxSeptember 12, 2020 at 10:04 am #585285frafiq81
The exam was okay but too time pressured. I think if i would fail then it would be due to not being able to write due to time constraints.
The bond question is a bit similar to requirement b(i) of Conejo question (Q 48 BPP kit). What should be Kd when calculating WACC after the issue of new bond as both the bonds had different yield to maturity/returns required by bond holders?
I did not even have a chance to look at the other requirement of this question and thought someone at opentuition would comment on that. I assume the requirement related to difference between forex and currency swap was worth 12 marks? I wish I had 10 more minutes to complete that part of the question.
Forex swap actually ‘locks’ the rate at the start of the transaction and then the same rate applies at the end of the transaction so you are not exposed to currency rate fluctuations. Specially when you are dealing with a weak currency or investing/doing a project in a country whose currency is weaker or not easily available on foreign exchange markets. For e.g you invest money at To in a project at the spot rate at To then you would receive the profits at T4 for example at the same rate.
With currency swaps there are two parties involved. You borrow an amount in your currency from the bank in your country for the counter party and pay their interest. The counter party borrows an amount in their currency from the bank in their country and pays your interest. The principals amount and interest payments are exchanged between the counter parties. The objective is to save interest payments because it would be cheaper to get a loan in your currency in your country.
Question 40 Buryecs (part b) in bpp addresses both these areas.
I think there should also be a poll in here for the ACCA CBE platform. I think 80% + plus will choose hard or disaster but i hope ACCA are willing to improve the software based on our feed back. Just submitted my suggestions via the survey. I think ACCA should give students an option to either sit for the exam via CBE or paper based exam.September 12, 2020 at 4:10 pm #585358Chrismartin
I think for the bond the market value was already calculated using the relevant spot yield curve for the year + Credit spread
Time 1 – Interest – $7.5 * (1+Spot yield curve for 1 year bond + credit spread for that year)^-1
Time 2 – Interest – $7.5 * (1+Spot yield curve for 2 year bond + credit spread for that year)^-2
Etc etc. That gave market value or issue value of bond.
Then using you can repeat the same cashflows including the initial purchase of the bond at market value (thinking about things from the investors perspective.
But for the DCF do one at say 5% and one at say 10%, then plugging that IRR, I think gives you the YTM.September 12, 2020 at 4:14 pm #585359Chrismartin
Agree completely with the time and hassle of CBE. Frustrating as I really liked the CBE function on the foundation level exams as my handwriting is poor. Especially as they aren’t as time pressured than AFM.
You save 30 seconds using an auto sum ON EXCEL, then spend 1 minute shuffling round the exhibits and word processor and spreadsheet because the screen is too small to show all relevant data.
Why they can’t either give you two screens or a copy of the questions on paper to help time pressure is beyond me.September 12, 2020 at 4:21 pm #585360Chrismartin
I think the idea about the FOREX swaps and currency swaps is more to do with what type of question you are trying to hedge/what benefit you are trying to achieve.
I think the idea of the Forex swap is to hedge relatively short term (a year or less). Which could to hedge a future reciept or payment and involves swapping a principle with a counter party.
The currency swap still involves the principle swap with a counter party but is mainly set up to lower the cost of borrowing (using the estimation that a company co is likely to be able to borrow at a lower rate domestically than an overseas company will and vice versa.
These kind if swaps are usually used when financing a significant overseas project that might last years. Theyll essentially benefit financially from the swap due to paying lower interest.
So the currency swap is no use use to hedge a receipt in a few months. At least I think that’s the idea. That’s the sort of stuff I wrote about anyway, and recommended that a Forex swap would be much more beneficial and the currency swap would be a better fit to the expected expansion projects – not the future rupees receipt.September 12, 2020 at 4:24 pm #585361Chrismartin
I dont think you needed to do any currency conversion to calculate the number of contracts needed. We were hedging a receipt of 202mR and the contract currency was in Rupees.
If i recall correctly, the premium on the option may have needed converting.September 12, 2020 at 4:57 pm #585365Chrismartin
I think thats the point. Its fine on a 27 inch monitor, you don’t get a 27 inch monitor in the real exam at the Pearson Vue UK locations anyway.September 12, 2020 at 5:24 pm #585371dharyn
To obtain the contract, all to do was divide 202m by 5m. Then we had to find the gain or loss on futures but the currency was denominated in Indian Rs per 1 euro, after finding the gain, I think I should have converted the loss in US dollar using the predicted spot rate (which is the current futures price) then multiply by no of contracts and contract size, another way of doing this is multiplying the loss in indian rupees x no of contract x contract size then divide the amount obtained by futures price or predicted spot rate (which are the same). I had no clue how to work out the amound underhedged.September 12, 2020 at 6:24 pm #585375Chrismartin
202mR/5m was 40.4 contracts, rounded down to 40 contracts.
40 x 5m contracts was 200m.
Therefore amount unhedged was 2mR which was hedged using FRA.September 12, 2020 at 6:41 pm #585376Magdalena
If I’m not wrong, there was a short note in OT notes (or maybe in BPP) where they explained that forex swaps are for very short term, like one week. So basing on this I recommended to use currency swaps.September 12, 2020 at 8:01 pm #585385dharyn
Thank you, make sense now. I’ve never seen a question examined in that fashion before, thats why I got confused, I’ve learnt futures in a methodical way without understanding the underlying logic that well. I did well on theory, hope I secure a pass.September 12, 2020 at 9:56 pm #585388accboy729
I guess the cost of debt should be weighted average of total interest /total market value ?
difference between forex and currency swap was 6 marks,another one asking benefit of seperate treasury department , 6 marksSeptember 12, 2020 at 10:33 pm #585390frafiq81
@accboy729 thank youSeptember 13, 2020 at 8:47 am #585413Chrismartin
Hopefully mate.September 13, 2020 at 9:44 am #585427frafiq81
@accboy729 yes i calculated based on weighted average and the proportion which i used was related to non currency assets however i hardly mentioned any assumptions in my answer because of lack of time…September 13, 2020 at 10:08 pm #585489egbule
The marks were actually there for the taking, but a little twist in Q1 (the second bond and all those stuff with it) did a lot of havoc.
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