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Hey there,
I really need help in understanding the answer. The part b where the market value is calculated for a geared company : $775875 + (1/5MVg × 0.35)
Conclusion was : 0.93 MVg = $775875
How did it come to 0.93? I am really confused. I promise I can’t sleep until I get a solution. Please and thank you
MVg = 775,875 + (0.35 x 1/5 MVg)
So…
MVg = 775,875 + 0.07 MVg
Subtracting 0.07 MVg from both sides gives:
MVg – 0.07 MVg = 775,875
or
0.93 MVg = 775,875I hope that makes it clear (and that you will be able to sleep now 🙂 )
Dear sir, thank you for reply. Sorry for troubling you. I did find out the answer. Mvg – 0.07Mvg means 1 minus 0.07 I did sleep well.
I have another question to ask. Practise Question 8 Sugar.
Part b, on calculation cost of options. For put options $1.70, the overall costs were divided by 1.6967. I understand it in terms of selling pounds, so use 1.6967.
The next put option $1.80, the overall costs were divided by 1.7006. Why would that be. I mean isn’t it the same transaction that we are going to pay $ means sell pounds?
Need guidance please, thank you so much.
In the first case we do not have quite enough dollars and so we need to buy the extra (293,000 + 6038 – 297500 = $1538 need buying, and so we use 1.6967, which you understand.
In the second case, we have too many dollars 293000+16310-315000 = – 5690 and so we need to sell them and therefore use 1.7006.Thank you sir,
I’m gonna practise more questions so that I understand better. By any chance, is there any past year analysis for P4 and P7?
You are welcome 🙂
Past year analysis for P4 is not really worthwhile – partly because the examiner change a couple of years ago, and partly because the format of the exam changed last year.
There will be an analysis in your Revision/Exam Kit, but I am not sure it is worth spending too much time on 🙂I cannot speak for P7 – it is Mike who teaches P7.
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