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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 growthCould 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.
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.
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