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    This document provides information about an examination for a corporate finance and investments option. It lists 5 questions that candidates can choose from, covering topics like investment appraisal, capital structure, bond pricing, foreign exchange risk, and the Black-Scholes options pricing model. An example question is worked through using the Black-Scholes model to value a European call option and determine whether to accept or reject an investment based on its net present value when incorporating the option value.

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    This document provides information about an examination for a corporate finance and investments option. It lists 5 questions that candidates can choose from, covering topics like investment appraisal, capital structure, bond pricing, foreign exchange risk, and the Black-Scholes options pricing model. An example question is worked through using the Black-Scholes model to value a European call option and determine whether to accept or reject an investment based on its net present value when incorporating the option value.

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    © All Rights Reserved
    Download as PDF, TXT or read online from Scribd
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    114 views13 pages

    CFI Summer Exam 2014 Answers PDF

    Uploaded by

    jed
    This document provides information about an examination for a corporate finance and investments option. It lists 5 questions that candidates can choose from, covering topics like investment appraisal, capital structure, bond pricing, foreign exchange risk, and the Black-Scholes options pricing model. An example question is worked through using the Black-Scholes model to value a European call option and determine whether to accept or reject an investment based on its net present value when incorporating the option value.

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    © All Rights Reserved
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    of 13

    SUMMER SESSION 2013/2014

    Examination for the

    MMUBS option

    406Z0100 Corporate Finance & Investments

    Unit Leader/Author: Gavin Brown

    Date (Summer):

    Time:

    Duration: 3 hours

    Instructions to Candidates

    Answer three questions from five


    Q1) INVESTMENT APPRAISAL
    Q2) CAPITAL STRUCTURE & BOND PRICING

    (d) Advantages and disadvantages to be discussed of; rights issue, 2-4 year bond issue and
    convertible debt
    Q3) WACC
    Q4) FX RISK
    Q5) DERIVATIVES – BLACK SCHOLES MODEL

    a)

    Step 1: Compute d1 and d2

    d1 = ln(14 / 18) + (0.055 + 0.5x0.252)6 / (0.25 x 60.5)

    d1 = (-0.2513 + 0.5175) / 0.6124

    d1 = 0.43

    d2 = 0.43 – (0.25 x 60.5)

    d2 = (0.18)

    N(d1) = 0.5 + 0.1664 = 0.6664

    N(d2) = 0.5 - 0.0714 = 0.4286

    Call = (14 x 0.6664) – (18 x 0.4286 x e-0.055 x 6)

    = 9.3296 – 5.546

    = € 3.783m

    Summary

    Conventional NPV € (3.00)m

    Value of call option € 3.783m

    Net € 0.783m

    Therefore, accept as positive NPV.


    b)

    END OF EXAMINATION

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