講義afm沖刺直播一2021年串講知識(shí)復(fù)習(xí)

ACCAP4AdvancedFinancial2021 AdvancedFinancialManagement(AFM)isdesignedtoenablecandidatestolearnrelevantknowledge,techniquesandskills,andtoexerciseprofessionaljudgment,inmendingortakingdecisionsrelatingtothefinancialmanagementofabusiness.FormatFormatofSectionA：Comprehensivecasestudy50marksSectionB: Twoquestions25*2 AllthreequestionsarecompulsoryDurationof3hoursand15AFMstudyresourcePartRoleofseniorfinancialadviserinthemultinationalorganizationRoleandResponsibilityofSeniorFinancialExecutiveRoleRoleofseniorfinancialadviserinthemultinationalorganization）011DecQ5(a)(b)Financial0Ethical310112DecQ4(d)0011DecQ5(a)(b)316JunQ3(b)1.Role&responsibilitiesofseniorfinancial1.11.1Financialmanagement1.3OtherFinancialmanagement1.21.3OtherFinancialmanagement capitalresourceallocationRaisingfinanceRaisingfinanceandthecostof

Role

RiskImpactoffinancialmanager’s(考試tipsotherfactorstoThekeyfinancialobjectiveforabusinessistocreatewealthforitsshareholders,howeverthiscancreateunfairimpactsonotherstakeholders.Factorstobeconsideredareasfollows:Impactoffinancialmanager’s(考試tipsotherfactorstoDoesthenewinvestmentprojecthelptoenhancetheFitwithUseofImpactonLikelyimpactonshareLikelyimpactonfinancialImpactoncostofImpactoffinancialmanager’s(考試tipsotherfactorstoWhattypeofindustrythefirmoperatesWhetherthefirmisEthicalClarityand frameworkforassessingfinancialSustainabledevelopment,pollution,socialandculturalEffective ernancewillassesstheimpactoffinancial environmentalissuesPartAdvancedinvestmentCH2InvestmentAppraisal 1.32019Sep/DecQ12016DecQ2DecQ12.12012JunQ43.Capital22012DecQ42009JunQ5Slow0SepQ1Washi2015JunQ14.Foreign52013Dec2011DecQ15.Exchangerate12016JunQ104JunQ4Furlion2014DecQ1Nahara02013DecuraDecQ5StromFundamentalinvestmentappraisalconcept(RecapReturnoncapitalCo.′sannualaccountingROCE

=OperatingprofitmarginxAssetProject′sannualROCE=AverageannualaccountingInitialinvestment+scrapvalueAverageinvestment=Initialinvestment+scrapvalueAverageinvestment= 2ReturnoncapitalAquickandsimpleConsistentwithmethodsusedtoevaluate asRelativescore(%)iseasytoConsidersthewholelifeoftheRelevantcashIgnoresthetimingoftheprofitsfromanRelevantcashItisbasedonaccountingprofits,butnotcashArelativemeasureratherthananabsolutemeasurehencetakesnoaccountofthesizeoftheIttakesnoaccountofthelengthoftheWorsenifasmallamountofextracashisearnedinanextraRelevantcashSunkcost(eg:marketCommittedCostofIfmaterialsareusedbyaprojectthentheywillPurchasecost,ifnewmaterialistobepurchasespeciallyfortheneedtobe ced,sothe cementcostisthecashflow,lostrevenueiftheycouldhavebeensoldasscrap,theywon’t,sothecostisCostofIflaborusedbyaprojectWagespaid,ifnewlaboristobeemployedspeciallyfortheproject,Idle,thenthecostofusingthatlaboriszero,Atfullcapacity,thenthecostiswagespaid+contributionlostontheworktheyhavehadto Timevalueof

11 1PV1=PV2=PV3=PV4=PV0PV0=CF1/Assumingaconstantgrowthrateincashflows,PV0=PV0=CF1/(r-PV0=CF0(1+g)/(r-22InvestmentappraisalBasicBasicInflation–real/moneyWorkingNetpresentvalueWorkingnReleaseattheendof ReleaseaftertheendofperiodNetpresentvalueTaxischargedonoperatingcashTaxispaidatcurrentTaxispayableinarrears/onadeferred0Losscouldbe0OnareducingbalanceOnastraightline1234OpeningTAD/Capitalallowance1719XClosingTaxbenefitonTAD2012JunQ4Tisa(b)3Jun2012JunQ4Tisa(b)3Jun2.2InternalRateofItrepresentsthediscountrateatwhichtheNPVofItcanbefoundbylinearStandardprojects(outflowfollowedbyinflows)shouldbeacceptediftheIRRisgreaterthanthefirm'scostofcapital.IRRL

(NLNHL=LowerrateofinterestH=HigherrateofinterestNL=NPVatlowerrateofinterestNH=NPVathigherrateofinterest.InternalRateof

IRR=R小+ NPV IRR=R小+ NPV NPV大—NPV=10%1554—（—1PVof1PVofInternalRateofDecisionComparetheIRRwith 'scostofcapital.IftheIRRishigherthanthecostofcapital,theprojectshouldbeaccepted.TheIRRprovidesadecisionruleforinvestmentappraisal,butalsoprovidesinformationabouttheriskinessofaprojecti.e.thesensitivityofitsreturns.TheprojectwillonlycontinuetohaveapositiveNPVthefirm'scostofcapitalislowerthantheWheretheIRRisclosetothe costofcapital,anychangestoestimatesintheNPVcalculationwillhaveasignificantimpactontheviabilityoftheproject.Anyunexpectedchangessuchasanincreasedinthecostsofrawmaterials,oranaggressiveadvertising nrunbyacompetitorwillerodethereturnmarginandmaymaketheprojectunacceptabletoinvestors.InternalRateofProblemwiththeIRR reinvestedattheIRRforthedurationoftheIfaprojecthas2IRRs(ormore),itisdifficultusefullycompareprojectsusingItisthereforeusuallyconsideredmorereliable calculatetheNPVofprojectsforinvestmentappraisal2012JunQ4Tisa(b)2.3ModifiedInternal2012JunQ4Tisa(b)2.3ModifiedInternalRateofReturnAssumereturnisreinvestedatcostofisgivesameasureofthereturnfromaisasimplePVR=thepresentvalueofthe'returnphase'oftheprojectPVI=thepresentvalueofthe'investmentphase'oftheprojectre=thefirm'scostofcapitalIfprojectreturn>costof ModifiedInternalRateofReturnExampleAprojectwiththefollowingcashflowsisunderCostofcapital10CalculatetheDF@101FVof

）????x（1+10%）-1=ModifiedInternalRateofReturnMIRRmeasurestheeconomicyieldoftheinvestmentundertheassumptionthatanycashsurplusesarereinvestedatthefirm'scurrentcostofcapital.Itdoesgiveameasureofthe umcostoffinancethatfirmcouldsustainandallowtheprojecttoremainMIRR,likeIRR,cannotreceNPVastheModifiedInternalRateofReturnExampleProcess01234NetcashPVNPVPVNPV= (R大—R小)大—=12.75% 1525?

Year($000)NetcashflowsPV12·75%

PVI= PVR=MIRR=[PVR/PVI]1/n(1+re)-1=(5,325/3,800)1/4x(1+12.75%)–1=ProfitabilityindexProfitabilityindex(PI)canbeusedtofindprojectwiththehighestNPVforeachunitoffundinvestedDecisionrule:choosetheprojectwithhighestInvestmentatA6B4C75D482009JunQ52009JunQ5SlowFashions(a)(b)Multi-periodcapitalrationing2012DecQ4Arbore(b)(c)(d)3+73CapitalShareholderwealthizedifCapitalrationingisarestrictiononFactorstoHardVs.SoftcapitalSingleperiodVs.Multi3CapitalCausesofcapitalcausedbyexternallimitationsbeingappliedto ,whenadditionalborrowedfundscannotbeDepressedstockRestrictionsonbankIssuecausedbyaninternalbudgetceilingbeingimposedonexpenditurebymanagementWishonlytouseretain2009JunQ52009JunQ5SlowFashions(a)(b)SinglePI=NPV/PVofcapitalUsePItofindprojectwiththehighestPIcanonlydealwithonelimitingfactor(i.e.oneperiodofIndivisibleandUsetrialandUsetrialandIfthereareanumberoffactors(i.e.anumberofperiodsof 3.2.1SingleperiodcapitalExamplePeelCohasidentified4positiveNPVprojects,asInvestmentatABC7D4PeelCocanonlyraise$12moffinancetoinvestat whichproject(s)toacceptiftheprojectsindependentandindependentandCandDaremutually3.2.1SingleperiodcapitalInvestmentatA6B4C75D48YSLCocanonlyraise$12moffinancetoinvestatindependentanddivisible–usePI,choosetheprojectwithhighest100%project480%Project8independentandindivisible–usetrialanderrorA=60/B=40/C+D=32+35=Capital100%project473.2.1SingleperiodcapitalInvestmentatA6B4C75D48YSLCocanonlyraise$12moffinancetoinvestatCandDaremutuallyexclusiveandindivisible–usetrialanderrorCapital√74Amultinational (MNC)isdefinedasonethatgeneratesatleast25%ofitssalesfromactivitiesincountriesotherthanitsown.BasicBasicInflation–real/moneyWorking

Example.ThecurrentrateofinflationinCostoviais

每 一年的基礎(chǔ)上計(jì)算下一年的ernmentactionis toreducethisrateeachby10%ofthepreviousrate.TheCostovianpeso/USdollarexchangerateiscurrently144pesosto1USdollar,andtheinflationrateintheUSoverthenextthreeyearsisexpectedtobe4%,3.5%,and3%respectively.CalculatetheexchangeratefortheCostovianpesotheUSdollarforthenextthree 65%*0.9 53%*0.9S1220=325=465=RemittanceCashflowsto1234Netcash346Remitto23ItistheseremittedcashflowsthathavetobeputthroughtheThefinalcashflowsforNPVpurposesare01234panyBlockedremittancesmaybeavoidedbyoneofthefollowingIncreasingtransferpricespaidbytheforeignsubsidiaryto (seeLendingtheequivalentofthedividendtothe Makingpaymentstothe intheformofChargingthesubsidiary additionalheadofficeParallelloans(currencyswaps),wherebytheforeignsubsidiarylendscashtothesubsidiaryofanother requiringfundsintheforeigncountry.Inreturntheparent receivetheloanofanequivalentamountofcashinthehomecountryfromtheothersubsidiary'sparent Theernmentoftheforeigncountrymighttrytopreventmanyofthesemeasuresbeingused.ForeignTaxonforeigntaxableTheleveloftaxationonaproject'sprofitswilldependontherelationshipbetweenthetaxratesinthehomeandforeigncountry.Note:P4examquestionwillalwaysassumeadouble-taxtreaty,projectalwaystaxedatthehighestrate.UKCo.carryoutprojectinforeigncountry,i.e.USUK(a) (b) (c) 25%UKRemitto@￡/$$Cash

(Wk1)US

paidinUK60/0.67X5%=$4.5mDomestictaxonforeigntaxable

US@

10/0.67X30%=UStax(Wk1)Aftertaxcash

4.2.4ForeignInexam,weassumethatthetax willonlyallow'arm'slength'/open-marketpricesfortaxreliefandwillnotallowanartificiallyhighorlowtransferprice.Examtips:題目如提到goingtoconsiderablyincreaseitstransferpricetoi.e.$100m,這個(gè)數(shù)字在NPV計(jì)算時(shí)可以用，但是要用文字說(shuō)明：the significantlyraisethetransferpricemaybeunsuccessful,asmosternmentsrequirethetransferpricetobesetonanarm’slengthbasis.i.e.marketprice ysisforforeignTherearetwomethodsforcalculatingtheNPVofforeign ysisonforeign

2018SepQ1Washi9Jun20112018SepQ1Washi9Jun2011DecQ1TramontStep1-Estimatetheproject'scashflowspost-taxinoverseasStep2-Converttheflowstohome

Step2-Covertthe costofcapitaltoanoverseasequivalentassumingIRPStep3-Addanyhomecountrycashflows,e.g.taxStep4-Discountthenetcountrycashflowsatcostof

Step3-UseadjustedcostofcapitaltofindNPVinoverseascurrencyStep4-CoverttheNPVintotheNPV-sameeither

Step5-AddinthePVofanyadditionalhomecountryflows,e.g.tax4.3ForeignNPV–Calculation Initial

X

4.3ForeignNPV–Calculation

0123401234XXXXXXXXXHomecurrencyprofit@30%-20%XXXNethomecurrencyXXXXDF(say1HomecurrencyXXXXHomecurrency ysisforforeignW3:TaxonprofitatTaxlosscarryNettaxableprofitin-FarlandtaxNettaxableprofitin-ResidualvalueTotalnettaxableprofitin-Nettaxableprofitin-AdditionalUKtax@10%inOtherfactorstoHowtofinancetheCSR& Othercost,i.e.training Assumptions(8CFforecastisInflationisAssumeexchangeratemovingonlyreflectNorestrictionsonmanagementchargeandTaxrateisBusinessriskisCostofcapitalisconstantat11%,etc.ReasonsforinternationalSpecialisation-Ifacountryspecialisesinproducingthegoodsandservicesatwhichitismostefficient,itcan iseitseconomicoutput.如果一個(gè)國(guó)家專門Economiesofscale-Byproducingbothforthehomeandinternationalmarkets,companiescanproduceatalargerscaleandthereforetakeadvantageofeconomiesofscales.通過(guò)為國(guó)內(nèi)和國(guó)際市場(chǎng)生產(chǎn)，公司可以大規(guī)模生產(chǎn)，從而Choice-Thediversityofgoodsavailableinadomesticeconomyisincreasedthroughtheimportofgoodsthatcouldbeuneconomicorimpossibletoproduceathome.有些商品無(wú)法在國(guó)內(nèi)生產(chǎn)，或者生產(chǎn)成本過(guò)高，通過(guò)國(guó)際貿(mào)易呢就可Competition-Internationaltradewillincreasecompetitionindomesticmarkets,whichislikelytoleadtobothareductioninprice,togetherwithincreasingpressurefornewproductsandinnovation.國(guó)際貿(mào)易的開展會(huì)增加國(guó)內(nèi)市場(chǎng)競(jìng)爭(zhēng)TradingTradebarrierswaysthatacountrycanseektoQuotas(限制進(jìn)口數(shù)量)-impositionofa numberofunitsthatcanbeimported.e.g.quotasonthenumberofcarsmanufacturedoutsideofthatcanbeimportedintotheTariffs關(guān)稅(限制商品價(jià)格)-impositionofanimporttaxongoodsbeingimportedintothecountrytomakethempetitiveonprice.Exchangecontrols -domesticcompanieswishingtobuyforeigngoodswillhavetopayinthecurrencyoftheexporter‘scountry.Todothistheyneedtobuythecurrencyinvolvedbysellingsterling.IftheUKernmentcontrolsthesaleofsterling(4.6MNCrelevantTrade Agreementsbetweentwocountriestoeliminatequotasandtariffsonthetrademost(ifnotall)goodsbetween Thesearesimilartobi- lagreementsexceptmorethantwocountriesIfthemembersofamulti-la tradeagreementareallinthesamegeographicalareathenitissometimesdescribedasa tradearea.Acustomsunionisatradeareawithacommonexternaltariff.Theparticipantcountriessetupcommonexternaltrade ,butinsomecasestheyusedifferentimportquotas.Singlemarketseconomiccommunities)單一市場(chǎng)(經(jīng)濟(jì)Asinglemarketisacustomsunionwithcommonpoliciesonproductregulation商品管理?xiàng)l例,anddomofmovementofallthefourfactorsorproduction(goods,services,capitalandlabor).Aneconomicandmonetaryunionisasinglemarketwithacommon4.6MNCrelevant

2016JunQ4FurlionDecQ1Nahara Decura DecQ5A

tradearealiketheEuropeanUnion(EU)aimstoremovebarrierstotradeAcommonlegalstructureshouldensurethatthestandardsoffoodqualitypackagingapplyequallyacrossallthememberTheEUalsohasanoverarchingcommonlegalstructureacrossallmembercountriesandtriestolimitanydiscriminatorypracticeagainstcompaniesoperatingintheseFurthermore,theEUerects(架起)commonexternalbarrierstotradeagainstwhicharenotmembermaybenefitfromoperatingwithintheItshouldfindthatitisabletocompeteonequaltermswithrivalcompanieswithintheEU.CompaniesoutsidetheEUmayfinditdifficulttoentertheEUmarketsduetobarrierstotrade.Example:考試中有Duediligence(盡職)oflogisticnetworksusedtotransportthefoodmaybeeasiertoundertakebecauseofcommoncompliancerequirements.HavingaccesstocapitalandlabourwithintheEUmaymakeiteasierforthe tosetupbranchesinsidetheEU,ifitwantsto.The mayalsobeabletoaccessanygrantswhichareavailabletocompaniesbasedwithintheEU.RiskanduncertaintyinCH3Riskanduncertaintyininvestment +82016DecQ2Fernhurst2014DecQ1Nahara2009JunQ1Inspiration1.Paybackperiod/Discounted2016DecQ22009JunQ122.Macaulayduration/modified22016DecQ2Fernhurst2009JunQ1Inspiration3.Sensitivity52016DecFernhurstQ2(b)2012DecArboreQ4(a)2010JunMandMQ3(a)2010JunSealIslandNuclear2009JunInspiration344.22010JunSealIslandNuclear2009JunInspiration5.32014DecRiviere2012JunTisaQ42009DecKatmaiQ51Riskand Risk&FMBasic AFMAdvancedRiskWACC

Paybackperiodbackperiod

RiskWACC(CH52PaybackPaybackperiodmeasuresthelengthofthetimeittakesforthecashreturnsfromaprojecttocovertheinitialinvestment.CostofcapitalCalculatethePaybackPaybackperiod=2+(2000/6000)=2.33

2016DecQ2CashCumulativecash01232016DecQ22016DecQ22Paybackmainproblem:doesnottakeaccountofthetimeofItfailstotakeintoaccountcashflowsafterthepaybackperiod,notconsidersthewholelifeoftheItisusedbymanyfirmsasafilterof3DiscountedPaybackmeasuresthelengthoftimeforthediscountedcashreturnsfromaprojectcovertheinitialinvestment.AlongdiscountedpaybackindicatesthattheprojectishighriskTheprojectwithshorterpaybackperiodislessriskymore ’stargetdiscountpaybackperiodshouldDiscountedPaybackExample.AprojectwithfollowingcashflowsisunderCostofcapitalDiscountedcash018,000/(1.08)23Discountedpaybackperiod=2years+(4020/4763)=2.84yearsComparewithpaybackperiod=2.33yearsDPPislongerthan3DiscountedPaybackEasytocalculateandSolvestheproblemofpaybackperiodbytaketimeofmoneyintoConsidertheriskofprojectbyadjustthediscountratetheButnotconsiderthewholelifeofproject.Thismaycauseproblemofacceptaprojectwithhighlynegativeterminalcashflowsbecauseoftheirinitialfavourablecashflows.Discountedpaybackmayleadaprojecttobediscardedthathashighlyfavourablecashflowsafterthepayback2016DecQ2Fernhurst4Duration2016DecQ2Fernhurst4Duration(MacaulayInAFMexam,forinvestmentappraisalpurpose,Durationisusedto:①M(fèi)easurewhenthebulkoftheprojectvaluewill②Measuretheaveragetimetorecoverthepresentvalueoftheproject(ifcashflowsarediscountedatthecostof③Measuretheaveragetimetorecovertheinitial(ifdiscountedattheproject'sinternalrateof4MacaulayCostofcapitalCashDF@PVpfx1234%oftotal 4MacaulayDurationcapturesboththetimevalueofmoneythewholeofthecashflowsofaMoredifficulttounderstandthanpaybackandmaybeemployedforthat5ModifiedthepercentagechangeinthevalueofprojecteveryunitchangeincostofModifiedDuration=MacaulayDuration/(1+costofItmeasuresthesensitivityofprojecttothecostProjectwithhigherdurationcarrymoreModifiedCostofcapitalCashDF@PV@x1234%oftotalModifiedMacaulayDurationVs.ModifiedDurationMacaulayDurationisthenamegiventotheweightedaveragetimeuntilcashflowsarereceived,andismeasuredinyears.ModifiedDurationisthenamegiventothesensitivityofprojectvalueandisthepercentagechangeinprojectvalueforaunitchangeincostofcapital.2016Dec2016DecFernhurstQ2(b)3DecArboreQ4(a)5JunMandMQ3(a)PowerQ1(iii)5JunInspirationQ1(a)4 ysismeasuresthechangeinaparticularwhichcanbetoleratedbeforetheItcanbecalculated

NPVofaprojectreducesThemainproblemwith ysisisthatitonlyustoassesstheimpactofonevariablechangingataSimulationaddressesthisproblembyconsideringhowtheNPVwillbeimpactedbyanumberofvariableschangingatonce,i.e.MonteCarlosimulationJunTisaQ42DecKatmaiQ5+4+2Simulationemploysrandomnumberstoselectspecimenvaluesforeachvariableinordertoestimatea‘trialvalue’fortheprojectNPV.Thisisrepeatedalargenumberoftimesuntiladistributionofnetpresentvaluesemerge.Byysingthisdistribution,thefirmcandecidewhetherForexample,lookatprojectAinthechart,95%ofthegeneratedNPVsarepositive,thismightreassurethefirmthatthechancesofsufferinganegativeNPVare5%,whichissmall.ExpectedIftheefromaninvestmentisuncertain,buttheprobabilityassociatedwitheachofpossibleesisknown,anexpectedvaluecalculationcanbeTheexpectedvalueiscalculatedasthesumof(eachemultipliedbyitsassociatedExample.ifsalesareexpectedtobeeither$1,000,000or$1,500,000withprobabilitiesExpectedEV=80%and20%ExpectedEV=MainThemainproblemwiththeexpectedvaluecalculationisthatthevaluemightcorrespondtoanyofthepossibleThecalculationgivesausefullong-runaveragefigure,itisnotusefulforone-3JunTisaQ42KatmaiQ5Value3JunTisaQ42KatmaiQ5ValueatRiskNormaldistributionExample.Theheightofadultmalesisnormallydistributedwithameanof175cmandastandarddeviationof5cm.Whatistheprobabilityofamanbeingshorterthan168cm? 0ValueatRisk09.2CalculationofZValueatrisk(VaR)isameasureofhowthevalueofanassetorZConfidencelevelsareusuallysetat95%,99%or1%1%0.50.%00.%%%ValueatRiskCalculationofValueatrisk(VaR)canbe fiedforaprojectusingsimulationtocalculatetheproject’sstandarddeviation.Standarddeviationrelatedtoaperiodoftime(aday,ayear),butmaybeoveradifferenttimeperiod(10days,ThestandarddeviationmayneedtobeadjustedbymultiplyingbysquarerootofthetimeExample.A4yearprojecthasanNPVof$5mandstandarddeviation$1mper yzetheproject’svalueatriskata95%confidence1.651.65x$1m projectisInthefuture,thereis5%的probabilityNPVvaluewilldecreaseby$3.3m.$5m-$3.3m$1.7mat95的confidencelevel,NPVwillnotlessthan$1.7m,inotherhand,thereis5probabilityNPVwilllessthan$1.7m. Periodrelatedrisk(longerperiodmore Discountedpaybackperiod:thelengthoftimeforthediscountedreturnsfromaprojectcovertheinitialMacaulayduration:weightedaveragetime(years)PVofprojectcashflowModifiedduration:the%changeinpriceforaunitchangeinyield.(每1%changeinyield,PVofcashflowchange多少i.e.1.8和2.3則2.3的sensitivityVolatilityandprobabilityofNPV(highervolatilitymore ysis:changeofavariablecauseNPVdecreaseto0.(越小越Simulation:bytrialanderrorfinddistributionofnetpresentvaluesEV：SumofpossibleemultiplebyprobabilityconfidenceValueatrisk:ThelikelylossofanassetoverasetperiodatconfidenceApplicationofoptionpricingtheoryininvestmentdecisionCH4Applicationofoptionpricingtheoryininvestmentdecision 1.22016JunFurlion92013ura2019Sep/DecQ192018JunChikepeQ12.Discussionofreal52016JunFurlionQ42014JunFaoileanQ4(a)2013uraQ12016JunFurlionQ4(b)2014JunFaoileanQ43.Sensitivityof42013DecAwan2013JunKenduriQ3OptionpricingBasicconceptofOption:Therightbutnotanobligation,tobuyparticulargoodatanexerciseprice,atorbeforea

orsellPutoption:TherightbutnotanobligationtosellaExercise/strikeprice:Thefixedpriceatwhichthegood1.1BasicconceptsofCall

long 9 Intrinsic 0012 <Out<OutofExercise=At>In$long<InExercise=Atthe>Outof$

OutofthemoneyAtthemoneyInthe 9 Intrinsic 1000Inthe AtthemoneyOutoftheBasicconceptsofCallt

longcall(buy)m

ShortcallBasicconceptsofPut

ShortputShare

LongOptionCalloptionintrinsic

ShareShareprice–PVofExercisePVofExerciseprice–ShareCalloptionCalloption：AhigherinterestratereducesthePVofdeferredpayment,makingtheoptionmorevaluable.Putoption:AhigherinterestratereducesthePVofdeferredreceiptsmakingtheoptionlessvaluableasanOptionvaluation-CallTheBlack-Scholesmodelvaluescalloptionsbeforetheexpirydateandtakesaccountofallfivefactorsthatdeterminedthevalueoftheoption.TheBlackScholespricingmodelTimetoThistablecanbeusedtocalculatedN(d1),thecumulativenormaldistributionfunctionneededfortheB-Smodelofoptionpricing.Ifd1>0,add0.5totherelevantnumberIfd1<0,subtracttherelevantnumberd1=1.05,N(d1)=0.3531+0.5=0.8531CallExample. the rateis5%,thedeviationofthereturnontheshareinthepasthas $1.48(currentshareprice=1.3Optionvaluation-PutUsingtheBlack-Scholesmodeltovalueput Put callP=C-Pa+Pee-Step1:Valuethecorresponding calloptionusingtheBlack-Scholesmodel.Step2:Thencalculatethevaluetheputoption1.3Optionvaluation-PutExample.Supposetheriskrateis5%,thestandarddeviationofthereturnontheshareinthepasthasbeenestimatedas34.64%.priceof$1.48(currentshareprice=1.5Sensitivityofoption–theThefigureN(d1)isknownasdelta.DeltameasuresthechangeChangeinoptionDelta=N(d1)=changeininderlyingassetspriceDeltavaluerangesbetween0to1forcalloptions,-1to0forItwilltowards1forwhenacalloptionisinthemoney;toward-

2013DecQ2Awan(b) 1.5Sensitivityofoption–the=/=adeltavalueestimatedbyN(d1)of0.6,byholdinghowmanynumberofLIFFENo.of=

=500Deltavaluexcontract 0.6xSensitivityofoption–the20132013JunQ3Kenduri

Vega=

JunQ4Faoilean

JunQ4FurlionRho

Theta=Real

2018JunQ1Chikepe(b)Discusshowusingrealoptionsmethodologyinconjunctionwithnetpresentvaluecouldhelpestablishamoreaccurateestimateofthepotentialvalueofcompanies,assuggestedbyDirectorC. (5marks)Traditionalinvestmentappraisalmethodssuchasnetpresentvalueassumethataninvestmentneedstobetakenonanoworneverbasis,andonceundertaken,itcannotbereversed.Realoptionstakeintoaccountthefactthatinreality,mostinvestmentshavewithinthemcertainamountsofflexibility,suchaswhetherornottoundertaketheinvestmentimmediayortodelaythedecision;topursuefollow-onopportunities;andtocancelaninvestmentopportunityafterithasbeenWherethereisincreasinguncertaintyandrisk,andwhereadecisioncanbechangedordelayed,thisflexibilityhasvalue,knownasthetimevalueofanwhereasrealoptionscaptureboththeintrinsicvalueandthetimevalue,togiveanoverallvalueforanopportunity.When stillhastimeavailabletoitbeforeadecisionneedstobe2RealTypesofrealOptionstoexpand/follow-on-Itmaybepossibletoadjustthescaleofaninvestmentdependingonthemarketconditions.ThekeyhereistobeabletodelayinvestmentwithoutlosingItmaybepossibletoswitchtheuseofassetsshouldmarketconditionsIfaprojecthasclearlyidentifiablestagessuchthatinvestmentcanbestaggered,thenmanagementhavetodecidewhethertoabandonorcontinueattheendofeachstage.

2016JunQ4Furlion JunQ4MMC 2013Decurab(ii)22Real2014JunQ4Faoilean2014JunQ4FaoileanExerciseOptiontoswitch/abandon(putoption):theresidualvalueValue