AFM*** P4 June 2014 Exam was.. Instant Poll and comments ***

@oisin10 i think the load was being repaid equally in 4 installments so its 15000 each year not like what you said. you redeemed it fully as a lump sum at the end of year 4

I got swap gain 1.2 and deduct 20 basis point bank fee. Both party got 0.5 gain ......half n half

Question 1 was fairly done except for some problem in the Mcauley Duration part, the Memo to the Board was the easiest part available in the exam Question 2 was also done averagely the Ke was 12% , some people had a positive APV and some had a Negative Question 3 was a disaster for me... In part a i expect full 4 marks where as part b was average in part c I totally lost due to the amount of information and the time left, was only able to value T co using the FCF method If i had attempted Q4 i would be more confident about passing still hoping for the best Best of Luck to All :)

Duration was 60 m divided by 3.808 annuity factor of 2% for 4 years.got 15575. And did rest duration part.....

Guys, for question 1 part a) was it a call option or put option for forex risk management?

Please can people confirm if it was a put option in q1. We needed to pay dollars so sell Swiss currency to buy dollars?

Put CHF option

it was a PUT option

Great. I was worried, as markers apparently ignore part of that question if you make wrong choice!

which question mentioned calculating sensitivity?

I don't recall seeing sensitivity?! Unless it was q5 which I didn't read

It was about duration @williams1977 where it asked about duration and sensitivity of interest rates

beta this was the most tricky paper i have faced in my acca lifeline.... :( it was simply mind boggling....

There was no calculation though

Put option , Right to sell

@elvericia it can be said for question 3 & 4 However the best part was that derivatives were tested in the compulsory question and not the optionals which was a surprise

Can anyone tell me what did they write in Q1(d) as to discuss NED concerns regarding proposal 1?

Guys, in q1: # of contracts for futures - 5060000/price of 6m future/125000=38 contracts. Am I right?

Yes it was quite an unconventional format. Anyone who didn't learn hedging was in trouble. I think it's the first time it appeared in q1. I think The memo to board was more like a P1/p3 to make up for that.

Its time pressure......instead of adding capital allowance I deduct it......silly mistake.......

Q1d Costs of Setting up a treasury function and its affect on shareholders value, furthermore the benefits of establishing a treasury department in the long-run. Also considering the fact that for the proposal 2 an effective treasury department should be present to control operations in four different countries with four different CURRENCIES

I think we need to convert 50.6 m into chf and divide by 125000.

I think the inflation rates were given to make use of them for the future spot rate. It couldve been done by: s1 = s0 * (103.33/100.33) the 103.33 = the 4 month inflation assuming annual inflation was 4% [considering CHF inflation was 1% Didnt we had to just assume the inflation?

I messed up Q1(d) so badly, i thought they were concerned by costs of hedging to outweigh the benefits rather then treasury department as a whole

for me is i didnt round up. so i only put 37 contracts. the rest i hedge under forward contract

Question 3 was a disaster...couldn't even figure out where to begin

Q3 was a disaster for me also and wish I had chosen Q4 :(

Q3(c) was a disaster, (a) and (b) were fine that division between 3 departments was too difficult to understand under such exam pressure

Anyone Answered Question 4?? Q4 (i) We were to talk about Real options and Investment appraisals (delay, expand, redeploy and abandon) (ii) Had no clue to be honest But still talked about how options can help maximize equity value if considered? (iii) factors affecting options – value of the asset, exercise price, risk free rate etc? Vega relates to Volatility (less volatility, less value of option and vice versa?)

@lakeside well i think Q4 was difficult, however i know answer to part (c) was 5 factors of BSM, MV of share, Exercise price, Risk free rate, volatility and time to expiry and Vega is how sensitive is a share to a change in volatility, hence high volatility gives higher value of both call and put options