*** December 2022 ACCA AFM exam – Instant Poll and comments ***

The exam was a bit weird…
Q1 was on currency and interest hedging, which included interest futures but to hedge against currency fluctuations… not sure i understood the question.
Q2 was on Npv which was negative? And a big theory question on how BSOP could be used to add value to NPv analysis (this one was ok)
Q3 was on forecasted cash balance and Balance sheet (weird that this type of question appear in AFM, usually i would expect this in FR) and on how the type of finance was viable and acceptable by the debt providers…
Felt like i did really bad in this one…

Totally agree – nothing like anything in study books or mocks – and the volume of information to take note of on small screens is so far removed from real life – bizarre, disheartening and frustration all rolled into one

Hard but partly because I didn’t study enough, or sleep. Brain froze at things I knew but couldn’t remember.

That paper was awful!!!
Q1 interest rate risk and currency risk so complicated couldnt understand how
To convert the figures to then calc premium

Q2 corporate reconstruction wow i too agree this is somthing you would expect from FR and then deciding if interest met the debt covenants

Q2 npv with bsop theory

I did use the PPP to calculate the future spot. Not sure if is right but didn’t see any other ways.

I got positive NPV of around USD 2.23 million.
How about you guys?

I used interest rate parity to calculate the forward rate by 5/12 * rate.
Not sure it is correct or not.

I found the capital restructuring question very difficult with lots of information with so less time, calculations part of the question was horrendous for me, so mostly concentrated on the theory rather than waisting time on calc.

In Q2 my NPV was negative, something around 10m if I remember correctly.
Cost of capital I calculated as 15% using capm , but was confused with bond so not sure at all

The only thing I can say about that exam is that with the exception of around 15 marks the rest of it was the hardest questions on AFM I have done

A few things I have never come across and also the Risk Management part of the syllabus accounting for 50% of the paper – did the exam setter just want everyone to have a bad Christmas – what was all that about really!

I had not come across in Delta Option hedge, Super normal growth rates for the Dividend Growth Model, and then a small area on credit risk came up in two questions – surely this is overkill for such a small area?

Q1 – 50 marks on currency hedges / collar options / interest rate swaps (all the hard stuff for Hedging that you would normally see only part of in past exams) for a conglomerate and divesting /restructure – I have NEVER seen a Q1 50 mark question all on Risk Management!

Q2 New project – WACC, betas ungear and regear (straightforward part) and working out NPV with no future cash flows given but previous 5 years CFS given – again weird as not even that before – also asking about gearing before and after project but first had to work out market value of loads and cost of debt etc (waste management company) – company been performing poorly for last few years as not been investing in NPV positive projects and asking about whether makes sense to increase gearing when taking on new project (industry average 30%)
Also few questions on credit risk /spread within these questions

Q3 strange NPV question using DCF for first part then again asking about put into WACC for discount rate to use then asking about gearing and IPOs versus reverse takeover (I think was online gaming company).

If anyone can remember these questions and the specifics better than me please add – def toughest Finance exam I have comes across with exception of around 10 marks but paper as a whole was a joke

carloseo86 wrote:How was your December 2022 ACCA AFM exam?

An absolute weird question paper. It seems like examiner prepare the question to make the students fail.

3 hours was not sufficient to complete this AFM paper.
It was my first attempt in the AFM CBE platform and working through separate exhibits in-between a word processing document and excel document is quite time consuming.

Suggest that the CBE platform caters to include all exhibits into and A4 word processing document.

Q3: Restructure question:
Too much detail to work out with the allocated time. Pretty much did not complete this question.

Q2: NPV with WACC (using beta from similar company) and Kd (Bond) was a fair question however made some errors as time was not on end and had to rush through the calculations as the CBE platform stalled for 20 minutes (screen freeze that needed to be sorted out)

BSOP model – blanked out could not remember the details here.

Q3: I was confused between currency and interest rates; and took some time to figure out this part.

Used the contract size of futures to calculate the options, made some errors with the calculation of the premium.

Overall paper was difficult with nuances brought that made the case confusing.

I agree the exam was a bit difficult and I ran short of time.
1) For the first question on hedging –
Currency hedging –
OTC Forwards – we had to calculate the forward rates from the spot rate and annual base rate given in the two countries
OTC options – Exercise price was given and premium payable was given.

Interest rate hedging
Futures
Calculate the effect on interest receivable if the interest rate increases or decreases by 0.5 %. (No of contracts and gain/loss on futures also had to calculate and mention)

Then it was answering some board queries.

2) The second question was about investment appraisal- both NPV and APV were to calculate. Surprisingly I was getting a negative value under both methods.
Then it had calculations related to the effect to gearing if the proposal is accepted and shareholders’ reaction to it.

3) Acquisition & Merger question – calculate the combined equity value after the acquisition. The benefits to the shareholder of one company, synergy benefits, and how the integration of the companies will be successful.

Overall it was a lengthy paper and for the section b questions, I found it difficult to answer all the parts clearly.

An absolutely weird question paper. It seems like the examiner prepare the question to make the students fail. Never Seen in the past paper like this type of question specifically Ques no. 1 which is a bit weird.

As critical as the question it needs a minimum of 4 hours to solve it. how you can finish that exam in the time provided I do not know!
Another thing is that CBE platform is not student-friendly, as their customized Spreadsheet is not enough to use a different formula, and a small exam room with lots of students pressing rush on the keyboard makes the environment annoyable. how you can finish that exam in the time provided I do not know!

Overall I am not sure what was the examiner’s goal as it was far from previous papers and practice papers.