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Conversion premium

Forums › Ask ACCA Tutor Forums › Ask the Tutor ACCA FM Exams › Conversion premium

  • This topic has 2 replies, 2 voices, and was last updated 5 years ago by John Moffat.
Viewing 3 posts - 1 through 3 (of 3 total)
  • Author
    Posts
  • September 6, 2019 at 1:00 pm #545258
    kenneth09
    Member
    • Topics: 7
    • Replies: 4
    • ☆

    Hi,John,
    I attempted the Sep.exam and there are several multiple choice questions that I’m not sure if they have been correctly chosen.

    First is about conversion premium
    As I remembered:a 9.5% convertible bond will be redeemed in 5 years at nominal value, otherwise it can be converted into 10 ordinary share which are currently priced at 12. Yield to maturity is 7%.what is the conversion premium.

    One of the question was associated with cost of capital: the cost of capital represent the opportunity cost , xxxxxx…

    Another questions was about the weakness of cost of DVM.
    One of the options stated: DVM does not explicitly consider the earning growth

    Could you explain those questions, thank you.

    And I surprised that the simulation was examined in section C a 5 mark worth discussion,I feel this is very tricky as it is supposed to be an unpopular topic in sections C discussion.

    September 6, 2019 at 1:19 pm #545263
    kenneth09
    Member
    • Topics: 7
    • Replies: 4
    • ☆

    The key words in my discussion includes:
    Pros:
    unlike sensitivity analysis, it considers inter dependency between variables
    It takes the all the variables and probability distribution into account and they can change at same time.
    It assist in making investment decisions by producing a range of NPVs.

    Cons:
    It may be difficult to assign the probability
    It is more complex and need computer assistance to perform.

    How many marks are expected for my discussion.
    Thank you.

    September 6, 2019 at 3:59 pm #545311
    John Moffat
    Keymaster
    • Topics: 57
    • Replies: 54665
    • ☆☆☆☆☆

    Sorry, but I cannot comment on the exam because I have not seen it.

  • Author
    Posts
Viewing 3 posts - 1 through 3 (of 3 total)
  • The topic ‘Conversion premium’ is closed to new replies.

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