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Just my opinion on the paper. Firstly, I think we all know that NPVs is probably the easiest topic out of the chunky ones, especially considering we’ve all done it before so he had to find a way of making it hard. The crazy inflation and extra currency (Euro) definitely made up for that as it was very time pressured. What also made up for it is that the options were, in my opinion, difficult to choose from. There’s always a hedge, but the part b, made it confusing, especially as it was never taught to me before and the other questions weren’t clear cut either in my opinion.
Now on to the paper, on the hedge, there was a trick which i and many others were fortunate enough to spot. It said it will start in 5 months time and be repayable in 11 months time, which means a 6 month borrowing, so I got 68 contracts. I got that the collar was the best one, but who knows.
As for the NPV, I got a positive and to me, this made perfect sense as the next question asked of the risks that should be taken into account before making a decision. In my opinion, if there are so many risks (as there were) and a negative NPV, it’s a given that it should be rejected, even if you have a negative NPV you don’t need to consider the risks as you’d reject it regardless. But you’d always weigh a positive NPV with risks to determine your course of action. So I’m completely convinced that the NPV was meant to be positive based on that logic.
Not sure if anyone agrees?To be honest the more worrying thing is the exams tips they put on here of what they think will be in the paper… it’s a load of rubbish! It’s very misleading and shouldn’t be on here.
Please Note:
Tips should not be relied on – they are only intelligent guesses.
Their only purpose is to give you suggestions for topics to concentrate on in your last few days of preparation. Do not exclude other topics from your overall preparation.I know it says that, but at a time when people are studying and stressed do you think they take that on board? Why put it on here if it’s a load of tosh? I ignore it all, but i bet a lot of people don’t. It’s unprofessional.
It’s like me saying the 2:30 at Ascot is going to be won by no.7 I’m a winner…
p.s. ignore what i said above as i just guessed.
it’s just pointless.
if you’re working,it is practically impossible to learn all the bit & pieces, and all the overwhelming details of each section of the textbook, I guess they put these forecasts so that we put more focus on these chapter but this doesnt mean that we should neglect other areas. Im sitting for p5 tomorrow and believe me there are a lot of things that i still dont know lol
You’re partly right that it was doable but examiner was messy and it should be compensated who expects a conversion rate of 100’s involving 3 currencies? There were easy marks but Q1 was just asking too much in specified time, You passed it, with high marks, good enough but everyone has their opinion as you just said and people who actually sat the exam unlike you have every right to call the examiner unfair etc.
Plus the questions have not being released yet so how’d you know it was an easy exam? Just wondering.
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I would say this paper was not easier, and perhaps even more pressured than previous.
However, I wonder will some credit be given for this JUNE sitting, provided that in September new comers will be in more advantageous position (i.e. in terms of re-sits)?What I mean that after every previous fail students tend to improve (hopefully) their skills for the next re-sit, but unil this June, they had only 2 options per year for resit (a little P4 excercise: per your annual subscription you had only two options to excercise in Jun and Dec, i.e. 2 option contracts)) but starting September 2015 new comers will receive an option 2 times more beneficial compared to old’ re-sitters. I.e. both ‘old’ re-sitters and new re-sitters are now equal to pass in December. In other words more options per equal subscription fee. I think this is unfair.
but at least they were actually foreign investements apraisal and risk hedging… with that you can have 75% at least…..
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So we have 68 vs 125 contracts for hedging question. Lets analyze Dec’14 question. It says “Assume it is 1 December 2014 today and Keshi Co is expecting to borrow $ 18,000,000 on 1 February 2015 for a period of seven months. Contract size 1,000,000” .
Right answer was18 x 7/3 = 42.
The question did not say 7 month from now, right? The same is June’s 2015 question. It was said for a period of 11 months without words “from now” . My opinion that the right answer is 34 x11/3 = 125 contracts.
Upset to say that I got 68 though. The good news is it worth only 0.5-1 mark.
The question was written differently. If I am not mistaken it said that the company will repay the loan in 11 months time.
For the question regarding sale of shares – I got profit per share in the last year of 0.12 when the dividend was 0.15; also both gross and net operating profit falling down very quickly. Both extremely alarming. My suggestion was to sell the shares now.
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@hasek
@lunix
whatever the answer is correct 68 or 125 I think it is unfair to mislead students with such tricky elements.
i got 125 but my feeling now is that 68 is correct.same comments related to shares . SELL SELL
concerning the shares question: did no one write about capital market theory and that the sales of such a large number of shares could unbalance the portfolio and that this should also be considered?
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I attempted Q3 but sadly I was able to complete only part of Part (b) 🙁 Poor time management on my side. Question 1 consumed most of my time
Why will it get more difficult from June 15, if the pass rate stays so low or gets lower for surely they will need to make it more passable?
They only held a few % of the company’s shares plus they wanted to sell outside the stock market to avoid signalling effect. They would be able to invest in different shares from Travel&Leisure industry (or any other industry) with better returns and lower volatility.
@lunix: thanks for your reply 🙂
for the CAMP theory I guess it’s more relevant how much % the shares make in the sellers portfolio, not how many % of the total shares are sold (or did I miss this info in the tetxt??) relevant is volatility of whole portfolio, not that of a single share and this is increased if whole PF gets unbalanced. selling needs not to unbalance but should be taken into consideration.
but I guess my writing time for this was wasted…concerning the dark pool I have the same, selling so many shares at once could lead to price decrease and thus losses. especially if market takes some time to pick of the shares.
I agree with you on switching. I am already doing that. I am switching to P5. P4 is a mess. I have written it 3 times. If I continue with it, I am afraid, I will continue to fail, nothing because I don’t know the paper but, I find it difficult to do that paper in 3 hours.
I think a sensible person should see wisdom in your advice. P5 is more of written than calculations. so, for me, it should be a bit easier.
I was under the impression that they held a portfolio as a source of liquid funds and in this situation it really does not matter if they hold shares of one company or another as far as the money is fairly safe so they can’t risk losing value in order to keep the shares in their portfolio.
I don’t think your time was wasted, any valid point is relevant.
I did not finish calculations in the first question due to doing it at the end; not even started the report so 100% am in a bad situation.It was 68 contracts. Needed to borrow the 34m in 5 months and would repay in 11 (i.e. borrow for 6 months)
Hence 34/1 * 6/3 = 68. The effective future lock in rate was 4.7% I think from memory.
What share valuations methods did people use for Q2, did people also do basic ratio analysis?
The hardest part of the NPV for me was dealing with the home currency that was quoted in 000 million. Overall they weren’t many shocks and all three questions were on one of the key core topics (NPV, Valuations and Hedging) so I definitely thought it was passable.
Here’s to hoping
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