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AVT(12/01)

Forums › Ask ACCA Tutor Forums › Ask the Tutor ACCA AFM Exams › AVT(12/01)

  • This topic has 7 replies, 4 voices, and was last updated 7 years ago by John Moffat.
Viewing 8 posts - 1 through 8 (of 8 total)
  • Author
    Posts
  • May 11, 2014 at 12:47 pm #168341
    hasanali95
    Member
    • Topics: 239
    • Replies: 248
    • ☆☆☆

    In part aii)for the call option valuation we deduct the divident stream from the current exdiv share price,but why do we discount it at the risk free rate and not the ke-g?
    Is it always to be discounted by the riskfree rate or only in this qs?

    May 11, 2014 at 6:23 pm #168378
    John Moffat
    Keymaster
    • Topics: 57
    • Replies: 54699
    • ☆☆☆☆☆

    It is an assumption on the basis that the dividend has remained constant and is therefore assumed to be risk free in that sense.

    May 11, 2014 at 8:10 pm #168391
    hasanali95
    Member
    • Topics: 239
    • Replies: 248
    • ☆☆☆

    What if the dividend is not constant?how would we calculate the Pv of the share excluding that dividend?

    Thanks alot Sir
    You are a superb tutor

    May 11, 2014 at 8:12 pm #168393
    John Moffat
    Keymaster
    • Topics: 57
    • Replies: 54699
    • ☆☆☆☆☆

    You could not be asked to deal with that possibility.

    September 18, 2015 at 2:27 am #272342
    wlta
    Member
    • Topics: 0
    • Replies: 27
    • ☆

    Dear John,

    Can you please tell me why the dividend have to be discounted? Is it not present value?

    Thanks a lot and looking forward to hearing from you.

    September 18, 2015 at 8:04 am #272347
    John Moffat
    Keymaster
    • Topics: 57
    • Replies: 54699
    • ☆☆☆☆☆

    It is because the option is exercisable in 1 year, but in 1 year there will be a dividend payable and so the present value of the dividend in 1 year is included in the current share price.

    November 10, 2017 at 9:20 pm #415172
    ameera98
    Member
    • Topics: 3
    • Replies: 34
    • ☆

    Can someone please post the answer or link to the answer of this qs. I am unable to find the solution anywhere. Even the latest revision kit doesnt have it.

    November 11, 2017 at 10:00 am #415229
    John Moffat
    Keymaster
    • Topics: 57
    • Replies: 54699
    • ☆☆☆☆☆

    This is such an old question that it is no longer on the ACCA website – the examiner has changed twice since this question was asked, and the current examiners style of question is different. That is why it is no longer in Revision Kits.

    You might find it somewhere by searching using Google or the like. To post a link or to post the answer here would be illegal because of ACCA copyright (and the ACCA is very strict on breaches of copyright).

    Sorry 🙁

  • Author
    Posts
Viewing 8 posts - 1 through 8 (of 8 total)
  • The topic ‘AVT(12/01)’ is closed to new replies.

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