June 2010

Question paper

Time allowed Reading and planning: Writing:

15 minutes 3 hours

This paper is divided into two sections: Section A TWO compulsory questions Section B TWO questions ONLY to be attempted

Formulae Sheet and Mathematical Tables are on pages 3, 4, 5, 6 and 7 Do NOT open this paper until instructed by the supervisor This question paper must not be removed from the examination hall

Kaplan Publishing/Kaplan Financial

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Paper P4

Advanced Financial Management

ACCA P4 Advanced Financial Management

© Kaplan Financial Limited, 2010

All rights reserved. No part of this examination may be reproduced or transmitted in any form or by any means, electronic or mechanical, including photocopying, recording, or by any information storage and retrieval system, without prior permission from Kaplan Publishing. The text in this material and any others made available by any Kaplan Group company does not amount to advice on a particular matter and should not be taken as such. No reliance should be placed on the content as the basis for any investment or other decision or in connection with any advice given to third parties. Please consult your appropriate professional adviser as necessary. Kaplan Publishing Limited and all other Kaplan group companies expressly disclaim all liability to any person in respect of any losses or other claims, whether direct, indirect, incidental, consequential or otherwise arising in relation to the use of such materials.

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Revision Mock Questions

FORMULAE SHEET

Modigliani and Miller proposition 2 (with tax)

ke = kie + (1 − T)(kie − kd)

Vd Ve

Two asset portfolio

sp =

2 2 w a s a + w 2 s 2 + 2w a w b rab s a s b b b

The capital asset pricing model

E(ri) = Rf + βi(E(rm) − Rf)

The asset beta formula

⎡ ⎤ ⎡ Vd (1 − T ) ⎤ Ve βa = ⎢ βe ⎥ + ⎢ βd ⎥ ⎣ (Ve + Vd (1 − T )) ⎦ ⎣ Ve + Vd (1 − T )) ⎦ The growth model

Po =

D o (1 + g ) (re − g)

Gordon’s growth approximation

g = bre

The weighted average cost of capital

⎡ Ve ⎤ ⎡ Vd ⎤ WACC = ⎢ ⎥k e + ⎢ ⎥ k d (1 − T ) ⎣ Ve + Vd ⎦ ⎣ Ve + Vd ⎦ The Fisher formula

(1+i) = (1+r)(1+h)

Purchasing power parity and interest rate parity

s1 = S o x

(1 + h c ) (1 + h b )

f0 = so x

(1 + i c ) (1 + i b )

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ACCA P4 Advanced Financial Management

The Black-Scholes option pricing model c = PaN(d1) – PeN(d2)e−rt Where:

The forex modified Black-Scholes option pricing model c = e−rt [F0N(d1) − XN(d2)] Or

d1 =

In(Pa / Pe ) + (r + 0.5s ) t s t

2

p = e–rt [XN(−d2) − F0N(−d1)] Where:

d 2 = d1 − s t

d1 =

and

1n (F0 / X) + s T / 2 s T

2

d 2 = d1 − s T

The put call parity relationship p = c − Pa + Pee−rt Modified Internal Rate of Return

⎡ PV ⎤ n MIRR = ⎢ R ⎥ (1 + re) – 1 ⎣ PV1 ⎦

1

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Revision Mock Questions

MATHEMATICAL TABLES

Standard normal distribution table

0.00 .0000 .0398 .0793 .1179 .1554 .1915 .2257 .2580 .2881 .3159 .3413 .3643 .3849 .4032 .4192 .4332 .4452 .4554 .4641 .4713 .4772 .4821 .4861 .4893 .4918 .4938 .4953 .4965 .4974 .4981 .4987 0.01 .0040 .0438 .0832 .1217 .1591 .1950 .2291 .2611 .2910 .3186 .3438 .3665 .3869 .4049 .4207 .4345 .4463 .4564 .4649 .4719 .4778 .4826 .4865 .4896 .4920 .4940 .4955 .4966 .4975 .4982 .4987 0.02 .0080 .0478 .0871 .1255 .1628 .1985 .2324 .2642 .2939 .3212 .3461 .3686 .3888 .4066 .4222 .4357 .4474 .4573 .4656 .4726 .4783 .4830 .4868 .4898 .4922 .4941 .4956 .4967 .4976 .4983 .4987 0.03 .0120 .0517 .0910 .1293 .1664 .2019 .2357 .2673 .2967 .3238 .3485 .3708 .3907 .4082 .4236 .4370 .4485 .4582 .4664 .4732 .4788 .4834 .4871 .4901 .4925 .4943 .4957 .4968 .4977 .4983 .4988 0.04 .0159 .0557 .0948 .1331 .1700 .2054 .2389 .2704 .2995 .3264 .3508 .3729 .3925 .4099 .4251 .4382 .4495 .4591 .4671 .4738 .4793 .4838 .4875 .4904 .4927 .4945 .4959 .4969 .4977 .4984 .4988...